Why media must charge for web content
Desperate to pump fresh revenues into their struggling businesses, Hearst Corp. and Newsday said last week that they intend to start charging for at least some of the content on their websites.
Judging from the terseness of the announcements, the statements seemed to be more aspirational than the result of lengthy and detailed strategic planning. But they’re a start. As Lao-tzu said, the journey of a thousand miles begins with the first step.
It’s a journey publishers absolutely have to begin. After years of giving everything away for free on the web, it won’t be easy for them to start charging for at least some of the content they spend small fortunes to produce. But there is no other choice.
If the news media don’t start getting paid for at least a portion of what they produce, some outlets simply aren’t going to be around to provide it. It’s already too late to save the Rocky Mountain News and probably too late to save the Seattle Post-Intelligencer and Tucson Citizen, which each face shutdown unless last-minute buyers emerge to rescue them.
So, free is not a business model that will support journalism produced by professional news organizations.
Because I have no faith in the blogosphere to replace the vital work of the professional (though admittedly flawed) press, I sincerely hope the traditional media will put a major effort into finding ways to get paid for at least a portion of their valuable content.
Emotions on this subject run so high that it is difficult for some people to have a rational discussion about it. So let’s talk about chocolate for a moment, instead.
Specifically, I have in mind the complimentary, foil-wrapped squares you get at the Ghirardelli store at Fisherman’s Wharf in San Francisco. The candy is free for a very sound business reason: The management hopes you will like it so much that you will buy several pounds to take home.
Judging from the long lines of tourists waiting to shell out $39.95 for gift-wrapped boxes of candy, it works. But I am sure even the most ardent advocates of free web content would agree that Ghirardelli would go out of business quickly if it let visitors consume all the candy in the store at no charge.
Now, let’s get back to the media business. While it would have been perfectly sensible in the early days of the Internet for newspapers to give consumers a taste of some content to encourage the purchase of more of it, it made no sense then – and makes even less sense now – to give away all of that expensively produced content for free.
As lovely as it would be if all the best things in life were free, the news media, if they are to survive, have to get paid for at least some of what they produce. That’s because the model that classically subsidized the production of journalism is irretrievably broken.
If it doesn’t get fixed, journalism as we know it will die off. While there are those who can hardly wait for that to happen, that’s not something I want to see.
Before pondering the way forward, let’s take a look at how we got to where we are:
The high cost of producing original content historically was subsidized at newspapers and other media by the sale of subscriptions and advertising.
With a few exceptions like Consumer Reports, which accepts no advertising and relies entirely on subscription sales, most of the media that sell advertising charge nominal subscription rates to build the largest possible audience.
This worked quite well in the pre-Internet era, when publishers for the most part were able to charge sufficiently high ad rates to subsidize the cost of content and make a handsome profit.
When the Internet emerged, most publishers committed the Original Sin of thoughtlessly giving away their content for free in the hopes of attracting millions of page views where they could sell the sort of high-priced ads that had built the value of their print franchises. This monumental strategic blunder resulted in three major unintended, and unfortunate, consequences:
:: By giving away their content on the web, publishers made it unnecessary for consumers to subscribe to the publications that generated the high advertising revenues that subsidize the cost of producing content. When advertisers saw audiences begin to shrink, they cut back their advertising. That’s why many newspapers have gone from typically being more profitable than Wal-Mart and even some oil companies to hanging on by a thread.
:: Publishers devalued their once-powerful franchises by letting anyone link freely to their content on the web. In so doing, publishers inadvertently subsidized the rise of any number of aggregators that have done quite well by selling low-priced advertising next to the expensive content that the publishers kindly let them have for free. The low price of the advertising on those websites is attracting ever-greater shares of the ad dollars formerly spent at the traditional media companies. At the same time, virtually unlimited ad inventory at competing online venues has driven down the rates newspapers can charge for both print and online advertising.
:: The wide availability of free content on the web quickly convinced consumers, who didn’t need much persuading, that content should be free. Apart from crossword fanatics like my brother in law who has to have a newspaper on which to write the answers, most consumers saw no particular reason to pay for a paper when the same information could be obtained more quickly and conveniently on the Net or an iPhone.
With the global economy in the worst shape since the last Depression, the industry finds itself having to undo the effects of its Original Sin at the worst possible time.
Can publishers do it? Dunno. Do they have to try? Yup.
Next: How to charge for content
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