Newspapers need to adjust to a new, modern business model that leverages their large audience and brand name to find new sources of revenue.
STEVE MURPHY: People have developed an idea that they ought to be getting their news for free. Right or wrong, this is now an expectation of the masses. Newspapers, like all industries dating back before the Internet, rebel against this idea. They sell content, and people must pay for that content or else they have nothing to sell! This is a fallacy that many businesses believe to be true. Newspapers are just one of the many victims of their own short-sightedness in this new world order. People expect their news for free, and somebody is going to give it to them. Whoever that is will have a chance to make a lot of money, but they have to realize that it’s not going to come directly from their readers.
The problem is one of scarcity. The news, like music, used to be scarce. You had to buy a paper to know the news in its entirety. There was no other way to get it, and so you bought a paper and took it with you. You could share it with your family or maybe somebody at the office, but that amount of sharing could never injure the newspaper business. The newspapers had a scarce product: physical paper with the news on it. There were only so many, it cost so much to pay people to write them, so much to print them, so much to distribute them, and you just tacked some margin onto that number and boom: profit.
But the web has made that scarcity obsolete. Nobody needs to buy a paper anymore (although many continue to do so), they can read the news online, for free. There is no longer a significant cost differential between providing the news to twenty people or to a billion. The costs of making a newspaper have dropped. You still have to pay people to gather and write the news, but you no longer have to pay much to print them, nor to distribute them. You can stop buying trucks and hiring drivers and paying for gasoline. You can stop running the presses and paying people to man them and maintain them, stop buying ink and paper. The cost of delivering the news to people has dropped significantly.
But nobody’s taking advantage of that. Nobody’s stopping doing things the old way. Papers continue to be delivered, but sales dwindle. You still pay the same money for drivers, gas, people to run the presses… but you print and sell less papers, hurting the bottom line.
And so the newspapers are trying to make their money back on the web. Sure, they’ve tried putting ads on their sites, but that just doesn’t bring in enough cash. And so rather than innovate, rather than do what many companies have done and found ways to make money tangentially, the newspapers are trying to make money by creating scarcity. They put a wall around their news online, and charge at the door. “There,” they say, “now there’s a limited supply of news. Now you can’t get news if you don’t pay.” Problem solved!
Except, of course, this business model has failed all the papers that have tried implementing it. Nobody wants to pay for news online. We all recognize the scarcity is invented by the newspapers. Most people can’t put their finger on it, can’t exactly explain why they used to buy a newspaper but now refuse to pay online, but this feeling of being duped is the root of that explanation. They can give me the news for free, but they won’t. And so I will get my news elsewhere.
Nine Inch Nails gave their last album away for free. It was, at the same time, the #1 selling MP3 album download on Amazon.com. Even though you could get it for free right from the artist. Trent Reznor has said that NIN made more money off of this album than any they’ve ever done before. YouTube provides a way to share videos with people, for free. But they make money, and did so even before being purchased by Google. Google is the largest search site on the web, to the point the word “Google” has replaced the phrase “look it up.” Google has a large staff, expensive headquarters, huge server farms that cost tons to supply with computers and tons to provide electricity and IT support for. And yet their users pay nothing, and still Google makes tons of money. Same goes for Yahoo, which really paved the way for Google, providing all kinds of services for free. AIM is the web’s biggest chat application, and yet it’s always been free, even now that AOL, AIM’s mommy, is making far less than it used to as the premier ISP. And AIM makes its owners lots of money.
How is this happening? How can all these companies give their products away and still make money? They make their money tangentially. Yes, Nine Inch Nails sold a lot of copies of their album, but they make most of their money through concert tickets and merchandise. YouTube and Google make money by creating a huge community, and then charging other businesses for a chance to access that community. Same with Yahoo. AIM sells ad space, but it also gives its users things like a Dark Knight theme for their AIM window and buddy icons of The Joker. And the movie companies pay for these themes and icons to be given away for free. AIM makes it money tangentially, by creating a huge audience, and then selling access to it.
And that is what the newspapers need to do. The newspapers need to stop seeing Google as a threat and start realizing that Google is sending people to their site. They need to stop thinking about their customers as mooches or as potential paid subscribers, and start to think of them as a resource, a way to increase their value to other companies who will pay to get time with their readers. The New York Times has a large following. If they start charging for news and stop letting Google link to NYT.com stories, that following will drop, fast. And it may never come back. But continue to give the news away for free and start charging for scarce goods, and you have a new business model. The news is not scarce, but the attention of the NYT audience is. Get the readers involved, get them invested, make them feel like part of the team. Use your fans to bolster your website’s usefulness. Start discussions with people, and have your writers respond. Make it a site people come back to multiple times a day. And then tell other companies, “Hey, we have a massive following of intelligent, forward-thinking people here. If you want to talk to them, they will listen. And we’ll charge you for that privilege.”
It’s all about added value. Magazines give their work product away online, but sales remain strong, because there is added value in the page layout and the large glossy pictures. I can download a movie for free but there’s added value for me in watching it in high-definition, so I pay to rent it rather than watch it in low-quality, and even more added value in extra content. I could own a very inexpensive cell phone but I find added value in my iPhone’s many, many features. People will pay for added value, and so will companies. The newspapers just have to recognize that their readers are their added value, and that this value is added for the benefit of advertisers and other tangential sources of income. They need to stop dreaming of bleeding their readers dry. No matter how hard the papers try, no matter how strongly they believe it, you can’t successfully charge people for something they’re already getting for free, with the explanation that you’ve already added the value and now it’s time to pay up.
I know I’m not offering any concrete suggestions. I’m not in advertising, I don’t have any specific examples of how leveraging the NYT audience might work. But there are companies who specialize in identifying a company’s scarce vs nonscarce goods, and helping them capitalize on the scarcity. They’re out there. And there are marketing firms with great ideas about how to push a product to an audience without placing a simple banner ad, who created things like the Dark Knight theme and buddy icons for AIM. The right people are out there. But it’s up to the newspapers to know they need these people, to realize that Google is their friend, and to see that invented scarcity is a transparent ploy that people are not going to fall for.
Think about it. The music business can’t solve their scarcity problem. They used to rely on the sales of scarce, physical items. Now, faced with their product becoming nonscarce as digital downloads, the industry is falling all over itself not to solve the problem, but to somehow enforce the old way of doing things. And the labels aren’t even giving their product away, people are just taking it! And even after hundreds of high-profile lawsuits, the piracy continues. If the music industry can’t get this problem under control when they charge for their products, there is no way the newspaper industry will, with products already available for free. This just cannot be put back into the box. Any attempt to put a wall around a garden of news will just result in an alternate, more popular garden that’s free for everyone. The music industry has learned this the hard way. It’s up to the newspapers to find a new business model that will sustain them, or be beaten by smarter, more agile competitors. We’ll find out in a decade whether these news companies manage to ride the new tide, or are washed away. Based on the industry’s response so far, I might wager on the latter.
The free ride is almost over, it’s time to pay
CHRIS PUMMER: If it seemed too good to be true, it’s because it is. The days of newspapers giving their readers all of their content for free are coming to an end, and the reason is simple: Papers might not have a choice.
The original idea was to put the content online for anybody who wanted it and advertisers would follow. It would be a win-win situation for everyone. Except those advertising dollars, almost a decade and a half later, have never materialized.
Today only 10 percent of ad revenue generated by papers comes from the Internet. In the face an economic meltdown that is shrinking all ad revenues, including those from an online sector so small it should still be growing despite a downtrodden economy, many newspapers are looking at doomsday scenarios.
There are only two real things a newspaper has for sale. The content it generates and the eyeballs that content attracts. Despite newspaper readership reaching all-time highs during the Internet age, the fact is emerging that online advertising is not going to be enough to sustain a full-service newsgathering organization the size a daily newspaper.
The next logical step might seem shocking to those who’ve grown used to free lunches, but without advertisers footing the bill, newspapers will begin to ask readers to cover the shortfall.
The decision to put news online free of cost has been described as the Original Sin of the newspaper business. The theory now goes that after years of getting content for free, readers will revolt when asked to pay for it. They’ll just go somewhere else. And it’s worth noting that most paid content models have failed up to this point.
But the media landscape has changed. Here’s why papers will charge for content — and succeed.
For starters, there very well could be nowhere else to go. The papers that don’t go out of business soon will start putting up content walls simply in an effort to survive. Others will quickly follow suit. Even if this didn’t hinder news aggregators or blogs, those news outlets won’t be able fill the void left by the disappearance of real local reporting.
Yes, there will be other smaller news outlets in the form of community “weeklies” (or more likely, blogs). But they won’t compare in the size or scope of a major daily, nor will they be able to conveniently package local news alongside regional and national news.
That convenience will be a huge issue for a large number of readers, one for which they won’t mind paying a modest fee for a name brand product – which is essentially what a newspaper will be.
Ten years ago it was stretch to ask people to pay for online content in large part because having readers peer at a computer screen instead of an actual printed page took those folks out of their comfort zones. That’s not the case today as people not only don’t mind getting information online, but most readers younger than 40 prefer to get information from the Internet.
In an online world where those same readers are willing to pay a dollar to download a song or 10 cents just to send a text message via cell phone, they probably won’t balk at being asked to pay a reasonable fee for quick and convenient access to the day’s news and more.
This is especially true for people who have grown accustomed to reading a paper online –- be it the New York Times, the Chicago Tribune or any paper. In the end, the Original Sin might end up being the ultimate hook. Now that readers know how great it is read a newspaper online, they won’t want to live without it.
CONTINUING THE DEBATE:
STEVE MURPHY: Here’s another article from TechDirt that shows how confrontational the newspaper industry is with new technology. The New York Times had their lawyers send a takedown notice to a blog called Apartment Therapy. Apparently Apartment Therapy was posting some apartment listings from the New York Times, including a portion of the NYT article and a photo from the NYT site…. and then linking to the full article at the NYT home page. Any modern business should realize that this is a benefit, not a problem. A website is teasing people into visiting your site, generating more traffic. But instead Apartment Therapy has been threatened into submission, and can no longer drive people to the New York Times’ site. Brilliant. Read the TechDirt article here.
And here’s another related TechDirt story direct from Chicago. A study of the Chicago Tribune found that a single issue of the Tribune included only eight locally produced stories. Geoff Dougherty, a Chicago local, publicly claimed he could provide better coverage of local Chicago news than the Tribune, for less than $2m per year. He’s gone forward with his plan, and has created a new-gen local newspaper, Chi-Town Daily News, available only online and supplying only local Chicago coverage.
Now I’m not saying this replaces the Tribune in its entirety… but it does show that a news model of hyperlocal or hyperspecific journalism providing their news via the web can work, and inexpensively. So instead of waking up in Chicago to a newspaper, you open Google Reader to the Chi-Town Daily News (or one of its handful of competitors) for local news, another site for the sports you’re interested in (and not the sport you don’t care about), another for your favorite set of international news sites. These are all small operations, requiring comparatively little money to run, and can perhaps develop superior reporting due to their narrow focus. Then yet another level of site (like the Huffington Post) can aggregate news they find interesting, and draw their own readership, linking to the hyperlocal sites.
Finally I found another great read at Yelvington.com that explains eight barriers to a paid local content business model for the newspaper industry. Very direct and well-explained. My favorite is his explanation of “the problem of scale (volume)”, which explains quite simply that these sites do not have the the volume they think they have. A terrific read that I highly recommend.
CHRIS PUMMER: Steve, a couple critical points about the new arguments you bring up through these linked articles:
Regarding the NY Times’ lawsuit against Apartment Therapy, I disagree with the premise of the TechDirt article.
To begin with, I think it is entirely fair for the Times to protect its work. It was the Times that collected the info and picture. If it were simply a summary and a link to the Times site, there probably wouldn’t have been a problem. The problem is if that information was repackaged in a way so that there was no need to visit the NY Times website via that link. That’s my impression of the situation, at least if the Times’ content was presented the same way other entries are over at Apartment Therapy.
But that also assumes that the link even has any value for the NYT. It certainly doesn’t have any if nobody clicks on it. And even they do, I think I’ve already made a very credible argument that all of those page views are not adding up to a sustainable revenue source through advertising.
Regarding the ChiTown Daily News, I think it’s a bit early to trumpet its arrival as the dawn of a new, successful model for free content, for a few reasons.
For starters, it has very little in the way of paid staff. It relies mostly on unpaid reporters and bloggers. Not to disparage the work that goes on there, but it strikes me as an inconsistent way to get professional quality reporting.
This model also isn’t supported by advertising revenue. It is a non-profit that relies on grants and donations from its readers. If you’re asking readers for money, why not ask for a nominal subscription fee instead of donations?
And to reference an article in the Washington Post, by the founders’ own admission the ChiTown Daily News isn’t really a comparable product to the Chicago Tribune or Chicago Sun-Times. They don’t cover sports, or city hall, or many other things figuring that the other news outlets are already covering those things.
In other words, it is not as comprehensive of an information source. It’s also not a competing product so much as it’s a complimentary product, filling the gaps in hyperlocal news coverage that those papers can’t provide, previously for lack of space in the paper and always for lack of manpower to cover the minutia of every community within the city.
That might sound revolutionary, but it’s not much different than what community weeklies have been doing for decades.
Finally the Yelvington piece. I don’t find his reasons very compelling. Partly because some of these arguments are flat out contradictory, but mostly because he labors under the notion that advertising will pay for the whole enterprise. Until you, Yelvington or somebody shows me an example of advertising doing that, his reasons are mostly invalid.
STEVE MURPHY: Chris, some responses:
I agree it is fair and entirely within the NYT’s rights to ask Apartment Therapy to stop linking to its stories… but it’s just illogical and self-defeating. As I understand it (the offending pages are no longer available to review), Apartment Therapy fully intended to send all their visitors through to NYT.com, and used only blurbs of information that could not be acted upon without visiting the original story. Apartment Therapy, in explaining the situation, said:
“…we’ve been very conscious to never take too much from them, only blogging a visual “taste” of an article and then pushing readers to get the rest on their site. In other words, our editorial policy has been to quote, not appropriate, just like we were all taught in high school” (source)
That same page also notes that as of original posting, the two sites are in talks, trying to work together to come to some kind of mutually beneficial situation.
I’m not sure what you mean about the link having value for the NYT… these are people who are actively looking for this information, and they are being sent, for free, to the NYT site. How could that be anything but valuable to the New York Times? And if they don’t benefit from posting this information and having people view it, why bother paying people to gather it?
Your points about Chi-Town are well taken, and I agree this is likely not “the” business model that will replace newspapers. But it is a start, and it is funded and operational. And I also understand that it’s not a comprehensive source of information, but my point is that the future of news is decentralization. Small, focused sites can get great coverage of their own small sphere, and readers can build their own list of sites to act as their replacement for newspapers. I, for instance, don’t care about sports. But I do care about politics, culture, gadgets, video games and making desserts. The chances of me finding a newspaper that hits those topics and hits them well is nil. But my blog aggregator acts as my newspaper, giving me just the news I want from focused sources of my choosing. That’s the future of news delivery. We just don’t need major papers aggregating news on their own.
I read today about yet another successful business model for an online news source. The site is NewWest.com, and it’s a news site staffed by a mixture of professional and nonprofessional writers, supported by both advertising and through the sales of tickets to conferences and events the site puts on, related to the news they provide. The site sees these conferences as “part-and-parcel of the journalistic mission, not a distracting commercial add-on.” They have about 1,000 people who pay from $150-$500 annually to attend these in-person events. The site also sees healthy ad revenue, which they say is possible if a site is willing to “work closely with advertisers and offer them flash ads, video ads, good stats reporting, and the opportunity to help understand a new medium.” They go on to say the learning curve for this new ad-supported world is steep, and possibly traditional papers are seeing poor ad revenue because they are not adapting quickly enough. (source)
Now again, this is not the answer for everyone… but there may be no answer for everyone. Just like in the music business, it’s time to start trying radical new things until newspapers can find a model that’s sustainable for them. NewWest.com has found one, choosing a specific niche and filling it. There will be many startups, many adjustments, and many failures. The big papers already have the power of their names and their comparably deep pockets. They now need to use this as leverage to move in a new direction, instead of trying to make the old methods (charging readers for the news) work online. Forced scarcity just won’t work.