Newspapers - A Business in Trouble
The internet has had a dramatic effect on the economics of newspapers and magazines. Almost all newspapers now offer extensive free content on the internet. Newpaper web sites offer even richer content than the physical paper, with interactive graphics, videos, blogs and reader comments (for examples, see the New York Times. Competition from free online news sources is forcing some newspapers (such as the Christian Science Monitor) to abandon print entirely.1 On March 16, 2009 Hearst Corporation announced that the The Seattle Post-Intelligencer was moving 100% on line. Newspaper revenues and staffs are shrinking, and many observers are wondering how journalism will survive if there is no-one willing to pay for it. There have even been suggestions that newspapers should abandon the idea of being a business altogether, and just operate as a charity, funded by an endowment2. Note that the BBC (British Broadcasting Corporation) is funded in the UK by license fees - that is, by "taxpayers."
The New Yorker initially had a very limited web presence, but now has extensive online content, as does The Economist.
Magazines such as PC Week are also abandoning print in favor of digital-only editions.
Several "pay for content" models have been abandoned. The New York Times experimented with asking users to pay for reading columnists, but abandoned the idea on 9/17/07. The Wall Street Journal has long had a successful subscription model for the web site, but Rupert Murdoch announced that he would abandon it after he bought the paper. Murdoch has now abandoned the idea of abandoning the online subscription, at least for now.
The Tribune Company (owner of the Chicago Tribune and other papers) filed for bankruptcy protection on December 8, 2008. Gannett - the owner of a group of newspapers - had profit down 60% in Q1 09.
Newspapers offer valuable "real estate" for advertising. There is a battle to control how online newspaper ads are sold. In early 2008 four newspapers created a joint effort to sell advertising on their sites online.
See a Project for Excellence in Journalism 2008 report on the economics of the newspaper industry. A 3/24/08 article about the report in the NYT says that revenues might fall 15% in 2008, driven by a combination of a shift to the web and the economic downturn (which tends to depress advertising revenues).
Warren Buffet's 2006 Letter to Shareholders contains some wise words on the economics of the newspaper industry. His basic story is that in the good old days newspapers usually had a monopoly in their city. Because there was only one newspaper they could charge advertisers whatever they wanted, and advertisers would have no alternative but to pay if they wanted to sell their products. The newspaper could also raise cover prices each year or two, and people would continue to subscribe.
Now companies can advertise online. Employment, automobile and real estate advertising have many online outlets. People can get news for free online from hundreds of different sites, so why should they subscribe to a newspaper? Buffett concludes by saying that there is still a place for newspapers, but the days of high profits are gone.
In the March 31 2008 issue of The New Yorker Eric Alterman wrote an interesting article about the decline of the newspaper business, called "Out of Print".
Some people are promoting small payments to read articles - know as "micropayments" - but many analysts are skeptical (including me).
Several major newspaper companies - the Journal Register, Tribune Co., the publisher of the Chicago Tribune, the Los Angeles Times, and the Star Tribune newspaper in Minneapolis - filed for bankruptcy protection in last 2008 and early 2009. The Rocky Mountain News announced it was going to close in February 2009.
In a March 2009 op-ed the CEO of the New York Times said that he knew what the problem was but he didn't know what to do about it.
Industry watcher Clay Shirky opines that the newspaper is dead, but news is not. There are "thousands" of blogs providing local news. The challenge will be to filter the news.
Circulation is Falling, and the Fall is Accelerating
Newspaper advertising fell 14% in Q1 2008, the largest quarterly drop ever. Circulation fell another ten percent in 2009. Circulation at the tabloid New York Post has fallen by 30%, due in part to competition from internet sites Gawker and TMZ. The satirical newspaper The Onion even suggested that the "Majority Of Newspapers Now Purchased By Kidnappers To Prove Date".
Most news is grim, according to a 2/7/07 New York Times article. According to the article, advertising revenue is the source of 80% of a typical newspaper's revenue. Advertising - especially in local markets - has been shifting to the internet. The Wall Street Journal reported on 2/14/08 that the New York Times is to cut 100 newsroom jobs in the face of slowing advertising revenue.
Some newspapers were guaranteeing sales increases from ad campaigns in 2010 "or the final ad comes free". Pay for performance seems likely to be attractive to advertisers for quite a while.
Many newspapers have looked to online advertising on their web sites to replace lost ad revenue. However, online ad revenue for newspapers fell in Q2 2008 for the first time since newspaper online advertising measurement began. Display advertising is strong, which suggests that newspapers' share is shrinking. Newpapers are hoping that multimedia and video content will help to attract more ad dollars, but this effort is "in its infancy" according to the New York Times (October 14, 2008). Internet advertising is bypassing newspapers and moving to advertising networks.
Distributing Bundles of Paper is Much More Expensive that Digital Distribution
According to one estimate, it would be cheaper to send every New York Times subscriber a Kindle rather than distributing paper.
New Capabilities enabled by the Internet
- Much more user generated content
- Customized news alerts
- News feeds
- Integrated video, audio, multimedia
- Customized layout and content
- Feedback on what customers like can be used to fine-tune the product (i.e. what the paper covers and how it is presented)
There's a new job called the journalist/programmer, responsible for creating interactive content.
See this news video on how newspapers are evolving.
The newspaper production process is also changing. Newspaper production used to revolve around an evening deadline so the paper could be printed. Now newspapers such as the Washington Post are reorganizing to make web publishing the primary driver of how articles are produced. The Post is reducing the number of editor reviews so articles can be published more quickly.
The case of Ashley Alexandra Dupre showed that social networking has made people's personal information more available to journalists and media outlets.
On-Demand Media generates content on demand. They make their money through advertising.
User Generated Content
Many news sites now offer viewers the ability to upload email, pictures or video. The also offer readers/ viewers the ability to comment on blogs. But how should media organizations respond to comments. A senior BBC executive gave a speech suggesting that processing comments takes a lot of resources, and calibrating content based on user feedback is not always the right thing to do.
Hyperlocal News Sites
April 13, 2009 NYT article on hyperlocal news sites. However, this model is unproven. There are many sites competing for local advertising dollars.
Sites such as seeclickfix.com allow citizens to report problems to local government, and some newspaper sites are using the tool to generate traffic.
How the Internet has Changed the Worth of Words
Now web sites pay for articles based on their value in a market of readers.
Business Models - How will Newspapers Survive?
There are some pay-for-content models alive on the web, but most sites rely on advertising, and that is not producing enough revenue.
Some papers are even experimenting with offshore reporters. You would think that reporters at least would have to be based locally, to get access to the news sources they need. However, in Pasadena Town Hall meetings are broadcast over the web, so India-based journalists can watch the streaming video and report on newsworthy events.
Pay for Content
Pay for content is gaining momentum. Even major papers such as the New York Times have announced plans to charge for some content. The Financial Times shows that the pay for content model can be successful.
WSJ piece on pay for content that says that the WSJ has 931,000 paying subscribers in 2007. In early 2009 both News Corp and the New York Times are exploring ways of charging for content online. Some observers suggest that online newspapers can take heart from cable TV, where people pay for television while they once got it for free. But other argue that cable was a far superior product to broadcast TV, and that was the reason people were willing to pay for it.
In July 2009 a Texas newspaper announced that it would start charging for content. A bold experiment! The entire newspaper industry will be watching with great interest.
Even more significantly, Rupert Murdoch — the CEO of News Corp, the world's largest media organization - announced his attention to charge for all online content by 2010. Murdoch believes that companies like Google are unfairly getting his content for free. The announcement follows a terrible financial performance for the financial year. He believes that this lead will cause other major media companies to follow. Many industry leaders will be hoping he is right. However, many industry observers believe it won't work, and that Murdoch's threats are unlikely to trouble Google. They say the value is in the links, not the content ("the link economy"), and cutting yourself off from links reduces value.
The London-based Financial Times also charges for content. The question is whether that willingness to pay will transfer to general news.
A November 2009 survey found that about half of Americans would pay for news online, but only $3 a month3. The same study concludes that charging for online news would improve profitability, because the cost of distributing online news is low. I assume the consultants must have factored in the lost revenue from advertising if the newspaper is put behind pay walls, although the article does not say so.
In November 2009 Google limited free click-throughs to pay news sites to five per day, responding to criticism that it was helping users to "steal" content.
In January 2010 The New York Times announced that it would charge frequent online readers. The idea is to increase subscription revenue without losing too much advertising revenue. Note that this announcement "sends a signal" to other newspapers. Will this lead to other announcements and tacit collusion?
A startup company is marketing a software tool for charging for online content, called Press+. An interesting feature of this software is that it allows companies to experiment— for example, by charging for only part of their content, such as obituaries. That reduces the risk; newspapers don't have to gamble with their entire audience.
News Corporation is finalizing the move toward pay for content at its premier UK newspapers. The Times of London and the Sunday Times now charge 1 pound per day for access. They have attracted about 100,000 paying readers, but only half of those are regular paying customers; the rest are occasional.
Partial pay models - where infrequent visitors pay nothing but heavy users do pay - have not led to a decline in readers or advertising revenue, according to one small scale study.
In Slovakia, newspapers are try to copy the cable TV model by bundling many different sites behind the one pay wall. That's like cable TV, where one monthly bill gets you access to many different sites.
The Guardian's editor is a dissenting voice. He notes that a third of his paper's online readers are from the United States, despite a very low marketing expenditure (less than $50,000!). He says it is too early to give up on advertising-based models. You can see his point. He can attract US advertisers, which gives him additional revenue at nearly zero additional cost. These new viewers are highly profitable. However, we don't know if that revenue is enough to pay to offset the presumed losses in the local UK market.
Some people advocate "micropayments" - small charges for reading individual articles, often proposed to be less than a cent. Opinion is divided on whether micropayments will work, but I doubt it. Springer in Germany is advocating one-click payment for viewing online news articles, coupled with a new copyright law that prohibits using even snippets of news articles without payment. German newspapers are trying to get Google to pay them.
The New York Times announced in October 2009 that it was with a Chicago-based non-profit cooperative to buy local news. Is this the start of a "news as public service" business model? A November 2009 NYT article pointed out that these cooperatives seem to have the resources to hire experienced journalists. A similar non-profit started in early 2010 in the San Francisco Bay area, and will provide material for the New York Times. The Bay Area non-profit was seeded with $5 million from an investor. It remains to be seen how these models will be financed over the longer term. The benefit of being a non-profit is that you can receive tax-deductible donations.
Aggregators and Search Engines
(April 09) Rupert Murdoch and the Newspaper Association of America are starting to complain about Google and others "stealing our copyright" —aggregating their content and linking to their articles. The newspapers feel that they should be paid. But Jeff Jarvis at the Huffington Post argues that the newspapers would lose the bulk of their traffic if they shut Google out. Jarvis says that the newspapers tried to hang on to an old and profitable business model too long, and now it's too late.
Newspapers and major web sites such as Google and Yahoo currently cooperate in terms of providing traffic and ad targeting technology. However, many papers feel they are not getting paid enough for their content. The other problem (from the newspapers' perspective) is that they lose control of the reader, who can choose any newspaper headline to read at Google News, instead of browsing extensively at - say - the New York Times site. Google says its use of headlines and snippets on Google News constitutes "fair use".
News Site Rankings
Questions to Think About
- What is the future for paid content on the web?
- What are the implications of "citizen journalism"?