Let the Debate Begin Part III

While doing my research for this blog, I once again stumbled upon a great story about pay for content on the Nieman Journalism Lab called, "Paying for online news: Sorry, but the math just doesn’t work," which was published in April of 2009. I touched base with the writer, Martin Langeveld, and he sent me back this message:

"There's been a lot of water over the dam since that post and as you probably know many others have explored the model. Somebody (also posted at Nieman) came up with a calculator that let you play with all the variables, using NYT (The New York Times) as a model — how many free pages before you have to pay, how much, the ad revenue variables etc. — and there was no way to make the thing break even. But I've come around to accept the fact that many papers/news sites are going to try this, and that some will make it work for themselves (niche sites, or specialized content on mainstream sites, or some sophisticated way of weaning users off free onto paid.) Also, iPad changes the game; most players will be offering paid subscriptions through apps, and not making the same "mistake" they perceived they made on the Web. Finally, the AP's announced clearinghouse model has great promise if done right to break open the closed models of websites and apps and to let content, free or paid, find its own audiences with defined channels for content creators/owners to get paid for it."

Considering the fact that Langeveld's stance has altered, I was able to do a Q&A with him. I found his answers to be very enlightening. You may have seen the same questions before. The method to that madness is that I want my experts to have similar questions in order to make a strong conclusion at the end of this process. And with out further adieu...

Q. In your opinion, what are the pros and cons of charging readers for online news?

A. On the pro side: it helps put in the minds of readers the idea that this content has some value; that there is a cost to producing it. And of course, in theory it creates a revenue stream for the publisher. Against this, on the con side, are these arguments:

(a)  Before online distribution, news in most media was free: radio, TV, and even newspapers — the subscription price or newsstand cost of a newspaper is really a convenience fee readers were willing to pay for their own personal copy. Historically, at least until the 1980s, it was a kind of freemium model: you were likely to find a newspaper to read sometime in the course of your day: at the barbershop, on a bus, in a waiting room, at the lunch counter, etc., and the pass-along readership factor was quite high. So if the prior news media never established value and a willingness of consumers to pay for news as distinct from convenience, then doing so for online news will be very difficult.

(b)  Except for a handful of publications with high-value content, like WSJ (The Wall Street Journal), FT (Financial Times), possibly NYT and various more topical niche publishers, it will be very difficult to implement a paid model in which the loss of ad revenue from lower page views is offset by the subscription income. Small local publications will simply not be able to implement pay systems by looking at the models that work for the high-value and niche publishers. 

(c)  Content has become atomized. The typical reader assembles a stream of online news not from a single source but from multiple sources, and will be unwilling to return to a single-source model.  

Q. Did newspapers wait too long to try to charge?

A. Newspapers waited too long to innovate, and now they are turning to pay models not strategically but in desperation. Most newspapers got on the web early on, but they assumed that the Web was an extension of print, that the business model would be the same as print. They sold online ads as "value added" benefits for print advertisers, rather than understanding Web advertising and helping their customers maximize results from online ads. While most large companies in the 90s began to reinvent themselves as digital enterprises, newspapers continued, to this day, to operate print-centered businesses. If you don't believe this, go to any newspaper and probe employees about their jobs — you'll find that the central organizing element in 90 percent of the jobs is the moment the press starts: advertising, newsroom and prepress work toward it; press room, mail room, distribution, circulation and the business office pick it up from there. The Web is a sideline, an afterthought, no matter what some of the slogans may be. In a truly digital news enterprise, most jobs would focus on digital publishing; print would be a niche product; and production, printing and distribution would be outsourced.

The real question is not whether newspapers should charge or not, or whether they waited too long. Even if they had charged from the beginning they would have failed, because they would not have made that fundamental shift to digital enterprises. If huge new Web-based businesses like Ebay, Amazon, Google, Yahoo and Facebook could arise without charging for any content, while newspapers got at best a toehold online, then the fault is not in whether they charged their readers or not; the fault is in their fundamental strategy.   

  
Q. How's charging going to stop sites like the Drudge Report from subscribing, cutting and pasting news articles? Do you see that as potentially creating copyright issues?

A. Well, if they subscribed and then cut and pasted, with current protocols that would be a copyright issue. The content owners would sue the pants off Drudge et al, and they would win. What publishers are complaining about is snippet aggregation, but they also know that it drives traffic back to their own sites. And they claim that they lose money from the more unscrupulous, generally offshore operators who cut and paste whole articles and try to make money on Google ads and the like — but in reality, that revenue leak is probably less than one percent of all newspaper revenue. 

If newspapers started thinking strategically they would realize that the whole nature of the Web is to cut, paste, share and link, and that they will never make money online if they focus on confining content to their own sites and syndication channels. As I proposed at NiemanLab in July, what they should really do is find a way to go with the flow, leverage the way the Web works, and allow their content to travel the Web in search of readers, with a rights and payments clearinghouse to channel revenue back to them. The Associated Press, in October, announced their intent to create just such a clearinghouse, which I believe will fundamentally change the way news content is created, distributed and consumed and enables a large new set of business opportunities around it, as outlined in this second NiemanLab post on the topic.

Q. Will charging for online content bring people back to print editions or push them to news sites such as CNN, Fox, and other network news sites? Or will charging create a domino effect, where those sites will begin to charge?

A. Charging for news on the publishers' proprietary channels like Web sites and mobile apps will limit the audience for their news, and hence limit the revenue opportunity. It will certainly not push CNN et al into charging for news, because it will demonstrably fail to create big new revenue streams. Without the shift to an open clearinghouse system, paid models will have very limited success for the reasons outlined above. But with the rights and payments clearinghouse, a local publisher's content might find a much wider audience on other news sites, niche sites (like Drudge) and even on CNN, Fox and the like, with revenue channeled back to the originating publisher. That publisher, themselves, can do the same thing: aggregate content from many sources, deliver it on a variety of platforms to their local audience, and share in the ensuing revenue growth. 

Q. Will a change like this signal the near end of print media or will charging online fail disastrously?

A. Charging will have little impact on the sustainability of print. US newspapers have already lost about half their total revenue over the last five years; they are still losing revenue year-over-year in each succeeding calendar quarter, and very little of that will ever come back, because no retailer, brand marketer or advertising agency is trying to figure out how to spend more money in print. They all want to connect with consumers digitally, because that's where consumers are shifting their attention more and more (with a significant age skew, but even baby boomers are buying iPads and reading more and more of their news online). Print publishers may think that they can stabilize things and survive on a lower profit margin, but (a) they have no cushion left against the next recession, (b) those demographic trends will continue inexorably, (c) the impact of iPad and other tablets and ereaders on reading habits is just beginning, and (d) newspaper circulation continues to fall at five or six percent year over year, as well (which is much faster than it ever was until five years ago. So clearly, at some point there's a tipping point, where daily print is no longer sustainable — you might see publishers switching to weekly or twice-weekly, and perhaps that's sustained for another 5-10 years in most markets on the strength of preprinted advertising. But even that still-lucrative revenue stream will dry up as marketers find ways to deliver those promotions digitally.

The premise of your questions seems to be that charging is the hail-Mary do-or-die option facing publishers right now. But in reality, the do-or-die choice is to follow their audience to the digital side, to figure out how to connect with them and stay connected, and make their money by facilitating transactions. Essentially, that's what newspapers always did: retailers had to reach out to customers, customers had to show up at stores to buy things, and newspaper advertising made that connection. Now, the transaction can happen anywhere, anytime. So it's no longer a question of presenting a two-dimensional advertising message to move a customer to a store — it's about connecting a customer with a retailer and moving the merchandise (or services) to the customer. Ebay and Amazon do that very well. Newspapers could figure out how to do it, but I'm afraid very few of them have the requisite capacity for innovation, change, and entrepreneurship — let alone the financial resources to make it possible.

Martin Langeveld's blogging output is most easily accessed via his own blog, News After Newspapers

Next time: The conclusion...