How many people really pay for digital news?

Now that roughly a third of the nation’s newspapers are charging for access to their web and mobile content, the early evidence suggests that digital audiences aren’t nearly as enthusiastic about paying for news as publishers are about charging for it.

Although digital-only subscribers make up 37.6% of the total circulation of the Wall Street Journal and 34.4% of the total readership of the New York Times, the number of digital-only subscribers at Gannett, the largest publisher of general-interest newspapers in the land, is 2.2% of its average aggregate weekday circulation of 3 million subscribers.  

Notwithstanding the relative productivity of their paywalls, the paid penetration at the Journal and the Times pales in comparison to the success that Netflix, Spotify, Major League Baseball and other ventures have had in selling entertainment-oriented digital content. As illustrated in the table below, Netflix, the most popular digital pay service of our time, has 40 times more monthly subscribers than the New York Times.  

The disparity in the demand for news and entertainment subscriptions suggests that the market for digital news may be less robust than newspaper publishers want it to be. But there is no doubt that publishers are counting heavily on it. 

After more than a decade of giving away their valuable content in an introductory offer of epic duration, newspapers in the last few years suddenly began erecting paywalls to try to make up for some of the revenues lost as the industry’s collective advertising volume slid from a record $49.4 billion in 2005 to $22.3 billion in 2012. 

As of July, paywalls had been erected at more than 400 of the nation’s 1,382 daily newspapers, according to a running list maintained by News & Tech, the trade journal. 

No publisher has been more vigorous in vowing to push paywall programs than Gannett, where chief executive Gracia Martore told investors in a conference call that the company had “around” 65,000 digital-only subscribers at the end of June.  

Publishing 81 dailies from coast to coast, Gannett represents an excellent proxy for the performance of paywalls at U.S. newspapers, because it operates in a broad array of small, medium and metro markets. (Gannett also publishes USA Today, whose 1.8-million circulation is excluded from this analysis because the paper does not have a paywall.)

The largest Gannett paper, the Arizona Republic, accounts for 10.8% of the company’s paid digital circulation, with 7,048 digital subscribers. The subscriptions represent 2.4% of the Republic’s over-all print and digital readership, according to the latest circulation reports from the Alliance for Audited Media, an industry-funded organization. While Gannett’s smallest daily, the Port Clinton (OH) New-Herald, has just 147 digital-only subscribers, the sum represents 6% of its total print and digital readership. 

The single-digit pay penetration at the Gannett papers is dwarfed by the Wall Street Journal and New York Times, which have the luxury of marketing to global audiences of business people, government officials, academics and others who have not only a need to know what’s in the papers but also can comfortably afford to subscribe to their digital editions. 

The latest report from the Alliance for Audited Media shows that the Journal draws 37.6% of its total circulation from its 890,105 digital-only subscribers. The Times pulls 34.4% of its total circulation from 725,334 digital-only subscribers, according to the audited figures for the six-month period ended on March 31.

As impressive as these numbers may be, it should be noted that the Journal and the Times are reaching only small fractions of the total global addressable market of 2.4 billion Internet subscribers. Their global penetration are respectively 0.04% and 0.03%.

Given their importance and power, you have to wonder why the Journal and Times aren’t doing better. But the simple answer may be that most consumers would rather pay for movies and music than for news, which is widely available for free at any number of sites ranging from Yahoo and Google News to Huffington Post and the Drudge Report. 

As you can see in the chart below, Netflix has come to dominate the paid content space with more than 29 million subscribers since launching its streaming video service in 2007. As noted above, this means Netflix has 40 times more customers than the New York Times. 

While no other digital subscription service comes close to matching Netflix, the available evidence suggests that publishers counting on an enthusiastic reception for paid digital news may want to recalibrate their expectations. 

Digital puts news consumers in control

News consumption in the digital era has become far more of a participatory activity than it was in the days when folks plopped into a La-Z-Boy to read the paper or watch the evening news. 

Publishers hoping to connect with modern audiences need to understand the radically different expectations that consumers have about when, where and how they get the news – and how they proactively mix, match and remix the information they acquire.

The surprising degree to which consumers are using digital technology to personalize and control the news-consuming experience is illuminated in a recent study from the Reuters Institute for the Study of Journalism at Oxford University.  

Conducted online in the United States and eight other countries, the Oxford study shows an eclectic appetite for news sources and platforms around the world, as well as a sharp generational divide in what consumers do with the news after they obtain it.  In particular, the findings show that digital natives under the age of 45 are more proactive than their elders. 

While the online-only nature of the study may not give the print and broadcast media all the credit they are due, these trends are too significant for media executives to ignore.  You can read the full study here.  Meantime, here are the key findings:  

Digital trumps traditional 

Online media far surpass newspapers as the primary source for news for both young and old consumers.  While 52% of those over the age of 45 said television was the main source they used for keeping up with the news, 30% in the senior cohort cited the Internet as their top news venue and only 10% named newspapers. By contrast, 55% of those under 45 said the Internet was their primary news source, with 28% citing TV and 5% naming newspapers.   

Digital users value choice

One in three digital news consumers said they used more than a single device to follow the news. While 71% of U.S. respondents used computers, 28% used smartphones, 16% used tablets, 4% used TVs connected to the Internet and 2% used eReaders. The more digital devices that consumers use, the more news they consume. While 68% of those who used only computers to access the news said they checked headlines several times a day, 88% of those who used a combination of computers, tablets and smartphones monitored the news throughout the day.    

Digital natives take control

Digital natives under the age of 45 view the news as more of a participatory activity than their elders. In the United Kingdom, the survey found that 23% of those in the junior cohort actively engaged in aggregating and curating news, as compared with only 13% of those over the age of 45.  At the other end of the scale, 46% of those in the over-45 group were passive consumers of the news, as compared with 15% of those in the junior group.  

Digital natives talk back

Far from simply leaning back to read the news, digital natives react to what they see. When asked if they have shared a news item via email or the social media in the prior week, 25% of those under 45 said yes but only 13% of those in the older group had done so.  There is even a difference in the means they preferred. While nearly a quarter of those under 45 say they would share an article over the social media, only half as many would do so via email.  Similar behavior applies to commenting on the news.  While one in five of those under 45 would comment on an article on a social network, only half the number would do the same on a newspaper or broadcast website. 

Digital natives prize peers

In a finding particularly troublesome for mainstream media, respondents under 45 said they put more trust in social networks and the power of the web than they do in traditional news brands.  While 38% said they got their news from social networks, only 23% said they relied on established brands. Thus, it appears that peers get more respect than brands.  

Gender adds a new dimension

News consumption, like so many other things, varies by gender. Men are far more interested in sports, business and science than women, while females are more interested in local news, celebrity news and health news. Men get more actively involved in culling, commenting and creating news than women.  The UK study found that 61% of the most active news consumers and commenters were men. Further, the study found that men are more likely to share news online, while women tend to do so in person.

Taken together, the above findings show that the news audience is less monolithic and more demanding than most editors and publishers ever imagined. Now, they need to imagine new ways to connect with those increasingly connected consumers.  

© 2013 Editor & Publisher

The five big decisions facing Bezos at WaPo

When Jeff Bezos takes control of The Washington Post in a few short weeks, the Amazon founder will face five enormous decisions that will shape the future of an iconic newspaper once so powerful that it drove President Richard M. Nixon from office. They’re decisions plenty of other media companies will be facing, too. Here goes: 

Local or global? 

First and foremost, Bezos will have to decide on the scope of the Post’s mission. Will he be satisfied sustaining WaPo as the dominant newspaper it has been for years in the Washington metropolitan area? Or, will Bezos leverage the Post’s unique perch in the capital of the free world to recast the paper as a full-on competitor to such other national/global news powers as the New York Times, Wall Street Journal, Bloomberg News, Thomson Reuters and the Associated Press? 

Print or digital?

You would think that a digital pioneer would have little regard for the legacy print business, but you would be wrong. Some 80% of the Post’s $265.7 million in revenues in the first six months of this year were generated by advertising and circulation sales for the print editions of the newspaper. If Bezos stopped the presses, he would stop something like half a billion bucks in annual sales, though it must be noted that average weekday circulation has slid by nearly 60% since 2003 to 471,800 copies per day and average Sunday circ has tumbled 51% in the same period to 687,200. But never say a publisher nowadays will never abandon print. With newspapers in New Orleans, Detroit and other metro markets reducing the number of days in the week that they print and/or deliver newspapers, the time eventually may come that the seven-day-a-week Post is an artifact of history.

Free or paid?

For years, the Post was the most prominent newspaper to decline to charge for access to its digital wares. But the paper in June finally decided to require web and mobile visitors to pay for access to the news after a certain number of free views each month. While digital access payments have created a valuable and ongoing new revenue stream for papers like the New York Times, the San Francisco Chronicle – evidently concerned that its paywall was crimping traffic – just dismantled a pay system that had been in place for only four months. In weighing whether to keep or kill the Post’s paywall, Bezos will have to choose between a short-term revenue spurt and long-term audience growth. His record at Amazon in eschewing immediate profits over the prospect of long-term strategic gain suggests that the WaPo paywall could go bye-bye.   

Advertising or merchandising? 

While advertising for generations has been the predominant revenue source for newspapers, this venerable business model was clobbered by the arrival of the digital media, which enable consumers to choose when and where they get their news – and enable marketers to establish direct relationships with consumers through websites, Facebook pages and mobile loyalty programs. The turnabout has been fierce. Aggregate ad sales at the nation’s newspapers have fallen by half since peaking at a record $49,4 billion in 2005. The ad collapse is the main reason revenues at the Post declined from $957.1 million in 2005 to $581.7 million in 2012. Given the so-far unmitigated contraction in advertising demand, Bezos could muster fresh efforts to shore up the traditional business. Or, more radically, he could abandon it. Instead of trying to persuade increasingly reluctant retailers to buy space in his print and digital media, the eCommerce master could turn every ad position and every page view into one-click shopping opps. 

Profit or loss? 

Not surprisingly, the plunge in revenues at the Post has eaten away at the once enviable profitability of the franchise, turning the paper’s pre-tax operating profit of $125 million (a 13% margin) in 2005 to a loss of nearly $54 million in 2012. Faced with similar challenges, most newspaper publishers, including the current owners of the Post, have whacked away in recent years at staffing, news hole and other expenses to try to sustain an acceptable level of profitability. Bezos might elect to do the same, but he also might not. Since Bezos is buying the paper with 1% of his $25 billion personal fortune, he has the means and latitude, if so inclined, to operate at breakeven – or even a loss – for whatever period of time he thinks it is necessary to rebuild or reposition the ailing franchise. Given his legendary patience in waiting for strategic initiatives at Amazon to swing into the black, the $250 million that Bezos is paying for the Post could prove to be just the down payment on an even bigger, longer-lasting commitment to the brand. Then again, it may not.  

This article originally was commissioned and published here by Say Media and is reprinted by permission.   

How can they fire the photographers? Easy.

Like many others, I was distressed to learn that the Chicago Sun-Times fired all 28 members of its photo staff, as the casualties include such cherished former colleagues as the Pulitzer-winning John H. White. 

“How can they do that?” asked a number of journalists, friends and readers who called or wrote to express their outrage.  “Yes, it’s awful,” I agreed. “But, actually, it’s easy.” Here’s why: 

Notwithstanding my profound personal respect for photojournalism and photojournalists, the fact is that relatively cheap, reliable and easy-to-use technologies like smartphones, Photoshop and Instagram make it possible for anyone, anywhere, anytime to shoot, sweeten and share a picture whenever the impulse strikes. 

The explosion in citizen-generated images has been, well, explosive. The number of photos published to the web is running this year at 530 million per day, or more than a 10,000% increase over the 5 million pictures put online each day when the iPhone debuted in 2007, according to Mary Meeker, a partner at the KPCB, a leading Silicon Valley venture firm. It is important to note that the chart below illustrates traffic at only Facebook, Flckr, Instagram and Snapchat. Plenty more images are turning up in lots more places. 

It’s not just photos. YouTube reports that 100 hours of new video are uploaded every minute, as compared with 10 hours of new video per minute back in 2007.  That, of course, is a tenfold increase. 

Even those who dozed through Econ 101 should know that rising supplies reduce the price that consumers are willing to pay for everything from apps to zucchini. For those who snoozed a bit too much, here’s what you would have heard: 

When a marketplace is flooded with a particular product or service, the primary factor determining the value of the item in question is how much of it is available.  Economists call this phenomenon “commoditization” and the affected goods and services are called “commodities.” Example:

Because one bushel of wheat is as good as another (the fancy word for this is “fungible”), the only matter left to decide in the fast and furious action at the Chicago Board of Trade is how much a bushel is worth at a particular point in time.  When wheat is in short supply, prices rise.  When there is a surfeit of wheat, prices fall. 

Now, it’s safe to wake up. We are going to talk about photographers again: 

The exponentially expanding supply of user-created images means we have come to the point that all but especially unique images are commoditized. As predicted here in 2007, this makes photographers “the most endangered species at our newspapers.” 

The explosion of content in the digital media, of course, doesn’t stop with images and video. It extends to news, information, opinions, self-published books, music, data and just about anything else that comes to mind. 

While the wave of user-generated content may be a bonanza for consumers, it is proving to be disastrous to the livelihood of professional content creators like the photographers at the Sun-Times. 

Once the managers of the Sun-Times concluded that they could get all the photos they needed at no additional charge from iPhone-packing staffers or the web, they summoned the photographers to a hotel ballroom in early May and fired them. The deed was copied rapidly by a small chain of papers in Georgia. And it is likely to be repeated again. 

To be sure, there are tons of journalistic and aesthetic arguments for why you cannot value a photo – or its taker – in mere dollars and cents. But we are talking business here. And all media companies are businesses that have to make ends meet, expressly including non-profit news ventures that intend to be around for the long term.  

The rules of natural selection require a company to make a sufficient profit to sustain the business from one year to the next. Otherwise, the business goes out of business. If profits are insufficient (or, worse, absent, as evidently is the case at the privately held Sun-Times), then managers have an unambiguous obligation to take the steps necessary to try to turn the red ink to black. 

The once-enviable profitability of newspapers has sagged severely since the industry’s aggregate advertising revenues began plummeting from the record $49.4 billion achieved in 2005. Today, ad revenues are less than half of what they were in 2005 – and still falling. 

When managers can’t turn around sales, the only other path to profitability is cutting expenses. The practice has been burnished to perfection at most newspapers in the last few years, where publishers have, among other things, scrapped Christmas parties, reduced health benefits, mandated unpaid furloughs, shrunk the newshole, outsourced ad production, eliminated TV books, cut newsroom staffing and/or abandoned seven-day home delivery. 

The axing of the photo staff was hardly the first economy employed at the Sun-Times, as the publishing company has sought profitability in the face of steadily shrinking advertising revenues. The paper’s many publishers over the years have fired staff, shuttered profit-challenged suburban editions and turned over printing and distribution to the Chicago Tribune, the paper’s arch foe. Even the outsourced printing arrangement has been troubled, according to media reports that the Sun-Times has been late in paying its bills.  The Sun-Times recently told the Tribune that it will terminate the agreement in 2015. 

While the elimination of the photo department at the Sun-Times was painful to behold, it is a logical outcome to the inexorable trends that are unhinging the legacy media businesses:  

∷ First, the various digital technologies have empowered anyone with a computer, smartphone, tablet, camera or (soon) Google Glass to be a publisher.

∷ Second, consumers are exercising that power with a vengeance. 

Before the days of auto-focusing and image-stabilizing digital cameras, photography was as much a science as it was art. To produce a great picture, photographers not only had to be in the right place at the right time but also had to make instant calculations regarding the speed of the film loaded in the camera, the amount of available light, the appropriate shutter speed and much more. Using viewfinders instead of digital displays, photographers had to approximate the composition of their pictures. In the days before rapidly advancing 35-mm. cameras, they didn’t have the luxury of squeezing off a series of shots in hopes of catching the action. They had to make a single shot or two count. And, of course, there was no Photoshop to fix your mistakes. 

In short, you had to know what you were doing.  

Today, anyone who can point and click can take a halfway decent picture. Maybe not a great picture. But, as the owners of the Sun-Times apparently believe, one that is good enough. (This Tumbler site, which compares and contrasts the photos of the Tribune and Sun-Times each day, would take issue with this thesis.)

While the epic surge of information includes equally epic amounts of drivel, you can’t blame digital entrepreneurs and profit-pressed publishers for using the ever-more-sophisticated digital tools at their command to extract a sufficient number of useful nuggets to put out what they hope will be commercially acceptable publications. And the web is the ideal place to scrounge up free content: 

Most of the photos and videos on the web are published openly, where they are easily discoverable through search engines and can be freely accessed for print, digital and broadcast use. Although the creators rightfully could demand compensation for the reuse of their original work, most are thrilled to see it published – and few are willing or knowledgeable enough to expend the time or money necessary to press a copyright-infringement case. Further, publishers and broadcasters can assert, quite legitimately in most cases, that the use of a newsworthy picture pulled off the web is fair use, and, thus, exempt from copyright protection in the first place. 

While a piece of clipart or a photo captured by a harried reporter on an iPhone may not be Pulitzer-worthy, the images can plug a hole on the website or tomorrow’s front page. So, yes, it is possible to get good-enough content to put out a publication.  

The question that cost-conscious publishers and broadcasters have to ask themselves, however, is whether “good-enough” content will be good enough to sustain the value of their franchises in the face of growing competition from the digital media.  

Grappling with some of the most extreme and prolonged financial challenges in the business, the managers of Sun-Times are betting that the occasional sub-par image won’t matter to readers and advertisers, let alone Pulitzer juries, whose approbation is not likely a major consideration in the paper’s business model. The Sun-Times brass evidently is reasoning – and not unreasonably – that few people walk up to a news stand to compare the photos in competing newspapers to decide which edition to buy.  

Unlike a new handbag or pair of shoes, newspapers are consumed as a matter of habit. In communities where there is only one newspaper – and that’s the case in most of them – the choice is even simpler: You either read the newspaper or not. 

In the absence of alternatives in the pre-digital era, it was a safe bet among publishers that their unique and inexpensive compendium of news, want-ads, sports, features, coupons, stock prices and TV listings could attract the large and valuable audiences that they – and, more importantly, their advertisers – wanted to reach. 

Today, the infinitely richer, unquestionably more convenient and usually cheaper flood of content coursing through the digital media has usurped the previously unmatched bundle of news and commercial information once delivered by newspapers. 

In other words, the digital media have commoditized news, entertainment and shopping. Except for a handful of technically recalcitrant individuals who still depend on print, no one needs a newspaper to be well informed and well entertained.  You only buy a newspaper if you want one.

How have publishers responded to this profound existential challenge? Not well. 

Unable to stanch the 50%-plus contraction in sales since 2005 and desperate to sustain a rough approximation of 20% and 30%  pretax profits that newspapers produced in their halcyon days, most publishers have watered down and hollowed out their products to the point that discerning readers can see that newspapers ain’t what they used to be. 

And recent research proves that newspaper readers are indeed discerning. A year ago, the Pew Research Center reported that only 29% of Americans had read a newspaper in the preceding day, as compared with 56% in 1991. In July, the Gallup Poll reported that only 9% of Americans identified newspapers as their primary source for news, as compared with 21% for the Internet and 55% for television.  

Publishers cannot be blamed for the latency of print, which puts newspapers at an insurmountable disadvantage to smartphones in quoting stock prices or covering breaking news. And newsprint can’t be faulted for failing to compete with the multimedia razzle-dazzle of a tablet.   

But publishers can be faulted for the perverse logic of thinking that they can compete with the growing array of digital competition by making their print – and corresponding web and mobile products, which generally mirror the content of print – less complete, less competent and less compelling than ever.   

The insidious and unrelenting erosion in the quality of the nation’s newspapers is not only painful to news professionals and dangerous to the health of our democracy. It’s also bad business, because, in the long run, inferior products hardly ever succeed.