Thursday, August 20, 2009

What stops publishers from charging for news

Second of three parts. Part one is here. Part three is here.

Fear, in a word, is the reason why publishers are treading so cautiously when it comes to charging for the valuable interactive content they have been giving away for more than a decade. It is a good, healthy fear, too.

Of all the dozens of chief executives, editors, interactive experts and business analysts that I have spoken to this year in connection with the ViewPass project, not a single one believes newspapers can make enough money charging for content to offset the drop in ad revenues that would occur when, not if, page views fell in response to the sudden appearance of a pay wall.

Even Steven Brill of Journalism Online, the foremost advocate for a global pay wall for newspaper content, says he believes no more than 10% of visitors will ante up for access to interactive news.

In announcing last week that the un-named publishers of some 500 publications representing 90 million page views have executed letters of intent to explore the use of his service, Brill suggested that the group could collect up to $900 million in revenues by charging the 10% of willing consumers $100 per year for access to content.

But what, publishers rightfully wonder, will become of the other 90% of website visitors – and the $3.1 billion in advertising revenues the U.S. newspaper industry generated on the web in 2008?

If Brill’s pay wall cut into more than a third of web advertising revenue, then newspapers will have made a disastrous and largely irreversible mistake. (One example of the daunting the math is illustrated in the comment below from Anonymous 9:33 a.m.)

Once newspaper site visitors were turned off by a pay wall, it would be difficult get most of them back – especially when plenty of other sites quickly sprung up to provide free access to coverage cribbed from the paid sites. Want to be the publisher of FreeNYTimes.Com? Too late. The URL already has been grabbed.

Publishers will be pretty defenseless in fending off content poachers, too.

Although the Associated Press is preparing to deploy an elaborate system to track pilfered content, its chief value will be to help build a case to prosecute scofflaws after the fact. The system, which is detailed here by Nieman Journalism Lab, won’t be able to do much about the traffic and ad revenue lost to the AP and its members as lawyers tussle for years over the intricacies of international copyright law and the nuances of the impossibly obtuse fair-use doctrine.

Here’s why publishers are sweating: While Brill argues that newspapers can preserve some 90% of their page views and online advertising after erecting a pay wall, publishers consistently have told me that they fear they could lose 75% or more of their traffic and banner revenue if they started to charge for content.

This may explain why the Los Angeles Times reported last week that such major publishers as Dow Jones, McClatchy and Tribune Co. had not signed with Brill. Although I cannot reveal the details of the confidential discussions I have had with several publishers, I can report a number of other big-name companies have not signed either.

Given the widespread skepticism I have heard from publishers over the likely success of pay walls, why did some of them sign Brill’s non-binding, non-exclusive letter? To ensure access, they said, to whatever secret sauce Brill is cooking up. Thus, Brill’s letters, which appear to be little more than agreements to keep an important conversation going, represent more posterior covering than actual forward momentum.

But the hard fact, as many publishers privately acknowledge, is that there will be no secret sauce.

It is true that publishers could be successful in charging for certain types of content, especially information that helps the purchaser make or save money. But most publishers realize it is preposterous to believe they can charge for national news, stock quotes, entertainment stories, sports scores and all the other widely commoditized information proliferating on the web.

If publishers are blocked for the most part from charging for content in the inherently open and unruly interactive marketplace, then what can they do? Tune in tomorrow for the final installment.

Next: How publishers can make content pay

14 Comments:

Blogger Michelle said...

I don't think that making people pay for news online will work well. And the longer they wait to find a way to do this, the more people will resist paying for their news. They are too used to getting it for free already. I for one would not pay and would look for new ways to get my news for free before considering paying for it.

4:32 AM  
Anonymous Diesel Mcfadden said...

I agree that newspapers should get paid. I just don't understand why newspapers feel like they're not subject to the laws of supply and demand.

To the extent that newspapers are writing unique stories, they can get paid. To the extent that they are rewriting or reporting previously reported facts for "local" markets while there is a single market for news in the country, the value will reflect the redundant supply.

If I can't get the information somewhere else, I'll pay.

7:49 AM  
Blogger Evan said...

What will happen to the sites that remain free if many news sites go paid? I'm thinking that there could be a huge opportunity not only to see higher ad revenues (scarcity in pageviews for ads will drive prices up) but even an opportunity to expand into new markets served by pay-wall sites. Competition drives consumer prices to $0 - we all know that. The only way a pay will will work for anything but the most 'in demand' content is if all online entertainment forms begin to charge. That is not going to happen. That's right folks... online news? It is a subset of entertainment.

9:23 AM  
Anonymous Anonymous said...

The problem with Brill's 10% is that local publishers who have started paid content (i.e. Oklahoma) have not reached more than 5% of their print subscribers as a paying online subscriber.

Take a 50,000 circ paper. In the first year, according to the Oklahoma paper, they should expect 2%. So they would be at 1,000 subscribers.
While I don't believe smaller market papers can command a 8.33/month rate, lets use it. Those 1,000 subscribers are worth an average of $273.00 per day.

I suspect $5.00/month is more accurate.
At that rate, the per day average is $164.00.

That same paper would probably be at say 100,000 page views a day. 3 ads per page, 300,000 ad impressions.
Let's say effective CPM of $4.00.
Their daily display ad revenue is $1,200.

Page views will absolutely drop as a result of paid content. Anything more than 22% and they are in negative revenue IF they can get to the 2% number at $8.33/month.
At the more realistic $5.00/month anything over a 13% drop in page views will be revenue negative.

Page views will (and have in test markets) drop at a higher rate than 22%. I don't believe small market newspapers can even get to the 2%.

Here is another way to look at.
Each 1% drop in page views is worth $12.00 a day.
Each subscriber is worth $.27 a day.
For each 1% loss in page views, you need 44 subscribers and that assumes you can get 8.33/month.
At $5.00/month subscriptions ($.16/day) it takes 75 subscribers per 1% loss in page views.

If your a newspaper reading this, do you think you can add 75 subscribers for every 1% change in page views?
At 30% loss in page views, you need 2,250 subscribers. Look at your monthly traffic numbers. How much do they dip between the peak and low months? Probably at least 20%. That drop is from users who don't get annoyed by a paid wall.

Everything scales back and forward. A 25,000 circ paper is probably making $600.00 a day, but would have a lower subscriber base.

1% drop in display is $6.00
Each subscriber at $5.00/month is worth $.16. You need 37 subscribers to match that 1%. At the 2% of print circ, you're at 500 subscribers. Lose more than 13% of your page views and you operate at a loss every day.

Online without subscriptions can be profitable. Don't waste time and money on paid content. Take that money and raise your commission on online display. Hire dedicated sales staff. Invest in analytics integration with ad delivery. Take a look at how TV sales their sales. They teach the advertiser the value of their market. Don't make online an add-on to print as though it's of no value. Learn that Click-through isn't as important. Do you measure the walk in traffic from every one of your print ads? No, you don't because you and the advertiser realize advertising isn't always about direct sales.

9:33 AM  
Blogger Melanie Balakit said...

What about people that aren't even old enough to own/maintain a credit card (me!)... =[

11:39 AM  
Blogger Paul said...

Mr. Mutter should know better than most what the AP’s content protection effort will entail.

However, he overlooks that AP’s planned content registry will enable new business opportunities for the news cooperative and its members, as the AP explores the most effective ways to display content and drive traffic.

AP’s intellectual property page can be found here:

http://www.ap.org/iprights/

Paul Colford
AP Director of Media Relations

12:57 PM  
Blogger rplothow said...

Anonymous:

You're making the same mistake as most others do in their analysis -- how much revenue are newspapers losing because their free content is reducing paid readership (either print or online) and thereby reducing the subscriber and advertising revenue it generates?

For one thing, you are over-estimating the actual CPM yield for online advertising. More important, you aren't calculating the much higher CPM earned via paying subscribers (a paying subscriber is worth far more to an advertiser than a web surfer). When you account for those factors, paid online content begins making sense in a real hurry.

Yes, pay walls don't work if you don't provide unique, compelling content. That's been true of all journalism as far back as we can track it as a business.

Roger Plothow
Editor and Publisher
Post Register
Idaho Falls, Idaho

6:33 PM  
Anonymous Danny Sullivan said...

I'd love to hear more about why they think a pay wall will cut pageviews so hard. If it's traffic from Google, the Wall Street Journal already uses First Click Free quite successfully to block content yet still get search traffic. If it's pageviews dropping because so much content will be blocked out, well, again as I said from yesterday -- they shouldn't be thinking of blocking everything.

6:37 PM  
Anonymous Joe Bullard said...

You can talk numbers, but what about the content? Do this: Every day for a week, make a list of the LOCAL stories in your daily paper that you would PAY to read. Remember, these have to be stories that you can't find anywhere else - not TV, not radio, not other web sites, not local alternative papers. Would you pay for what's on your list?

Let's pretend you're a sports fan. Take your list and subtract all the sports stories. Got to play by the rules, so remember that the sports stories have to be exclusive to your daily. Would you pay for what's left on your list? Would you pay for just the sports stories?

Is there a market for specialized pay walls?

By the way, every editor in America should take this test. How many exclusive stories a day are in your paper? How many of those would YOU pay to read?

Why are you surprised that your subs are down? It ain't the economy, stupid.

Many newspapers are boring, out of touch with their communities and offer very little value (exclusive content) to readers.

6:38 PM  
Anonymous Anonymous said...

Bravo, Anonymous 9:33 a.m.!

I am, perhaps naively, hoping that this colossal waste of time, effort and money is finally running out of steam.

6:03 AM  
Blogger Radio Ann said...

Newspapers should take a lesson from public radio: even in states where public radio listener membership is high, like Minnesota, the percentage of those who give among those who listen still is only between 12-15%.
One idea that I have yet to hear discussion of is recognizing that news production and gathering as an industry is irrevocably shrunken. A lot of the answers are still focused on an advertising based revenue model, which I personally think isn't coming back to the levels newspaper executives and publishers are hoping for. Instead, why not look at a national fee structure - which is how the BBC and almost every other western newgathering powerhouse is funded - to provide the nucleus of reportage. Newspapers will still be around - they just wouldn't be the core information source.

6:57 AM  
Blogger iCopyright, Inc. said...

Users won't pay to view content online, but they will pay to "use" that content. Most publishers don't understand the difference.

1:02 PM  
Anonymous Anonymous said...

People won't pay for stories. They might pay for something else: useful data they could profit from, an extremely fun application they enjoy, ...

9:28 AM  
Blogger Douglas Moran said...

It staggers me how much publishers, and even smart folks like Brill, can ignore history or grab onto a delusional model simply because it's comforting.

Anonymous posted numbers that should get anyone's attention. In addition to that, let's consider some history:

o) The NY Times tried to wall off a portion of their content. That didn't work out so well. Why are publishers expecting a different result this time? (The obvious answer is, "Because they really, really want it to turn out different this time.")
o) Recording companies tried to sweep back the tide using the same model that the AP is proposing. That didn't work out so well, either. And it cost them 10 or more years, during which they could have been developing a different model. (And given that they were maintaining CD prices at an artificially high level, when the market dropped out from under them, there was a powerful lack of sorrow from consumers.)
o) Finally, who is going to pay $100 per year for something ephemeral like a subscription to an online news site? For $100, I can get a year of The Economist, which delivers an actual, hard-copy version of the magazine to my door. $100 per year for bits doesn't seem like much of a bargain.

I don't know what the answer is, but pay walls sure isn't.

12:51 PM  

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