Online Journalism Review‘s lead story today is a first-person account by Albuquerque Journal Assistant Managing Editor (for production technology and new media innovations) Donn Friedman about why his newspaper’s Web site switched from free to paid access. After reading it, we posted a comment on the OJR site:
- Wow, the 110,000 daily print circ. Journal annually earns $100K by charging for access to its Web site! But the Borrell survey of 247 U.S. newspaper sites this year found that free sites from newspapers in the 100,000 to 200,000 daily print circ. range earned an average of $12.76 annually per print circulation. That means the Journal should be earning around
$1.4 million annually as a free-access site, 14-times what it now earns as a paid access site.
The Journal‘s problem wasn’t that it was giving away free content, but that it had never gotten serious about business plans until the publisher got tired of the losses and put the brakes on. That’s when this site really got serious about advertising, promotion, and marketing but also unfortunately started charging for access.
I’d earlier overestimated the Journal’s paid access revenues; this articles corrected that.
Paid access unfortunately has become a dogmatic, rather than a scientifically studied, topic. Publishers often make decisions about it based not upon evidence and knowledge but upon prejudicial beliefs. They prejudge that because consumers demonstrably pay for a newspaper’s content in print editions, consumers should then pay for that content online. Or they prejudge that their newspaper’s work doesn’t have value online unless people pay for it online. Like all prejudices, these beliefs about paid content are dangerous for the newspaper industry.
We don’t mean to slight Donn Friedman, who we understand to be a competent gentleman. However, we think that his experience and statements in the OJR article illustrate of some of these dangers.
- “Information wants to be free, or so the mantra of the Internet generation goes.
“I believe the mantra. I believed it and fought for it.”
In reality, what Stewart Brand said in his 1987 book, The Media Lab: Inventing the Future at MIT, stated was:
- “Information wants to be free because it has become so cheap to distribute, copy, and recombine — too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away. It leads to endless wrenching debate about price, copyright, ‘intellectual property,’ the moral rightness of casual distribution, because each round of new (technological) devices makes the tension worse, not better.”
We’ve added that boldfacing for emphasis. Brand — a greybeard who was no member of the Internet generation — wrote that information simultaneously wants to be both free and expensive. That’s a very important distinction. Brand had noticed how evolutionary progress in media technologies was giving consumers much greater access and choice in information. The greater supply and greater access was greatly decreasing the value of most information, but correspondingly increased the value of the appropriate information when delivered to the appropriate individual. This problem was getting worse as better media technologies evolved.
Unfortunately, most people nowadays have never actually read Brand’s Dictum. They merely remember its first five words; which someone has probably told them. This leads to the second problem …
No printed daily newspaper in North America profits from selling content. Ask any Circulation executive. The $0.25 to $1 paid for a daily edition at a newsstand or the $150 to $400 paid annually for a subscription is to defray the publisher’s costs of purchasing, printing, and distributing the newsprint. Even then these charges generally don’t defray those actual costs. This is why many newspapers and almost all magazines routinely circulate at a loss. It is why when paper mills increase newsprint prices, newspaper single-copy and subscription charges go up. American newspapers charge consumers only for the actual costs (or less) of purchasing, printing, and distributing content via newsprint. Those costs don’t exist online, which is what belies this statement by Friedman:
- “As the Albuquerque Journal (independently owned, 156,000 Sunday circulation) prepared to launch our online edition in 1996, my boss asked ™ why don’t we charge for our site?”
His boss neither understands why the newspaper charges for a printed edition nor that he doesn’t have those paper, printing, and distribution costs online. Superficial thinking. He thinks that ‘Because people pay to buy a printed newspaper, then newspapers must charge people for that content online.’
While it is true that some consumers might be willing to pay something to the publisher to access that content, most publishers fail to realize that — with lack of paper, paper, printing, and distribution costs online and with the greater access to all information sources that online access give consumers — most consumers aren’t willing to pay anything near the amounts that most publishers would like to charge online. Most of newspaper Web site that charge are charging $5 to $10 per month for access, far higher than the $1 to $3 per month that most consumers say they might pay. The result is that hardly any newspaper Web site has been able to get more than one percent of its users to pay.
Friedman says that his site had more than 50,000 unique users each day when it was free access. Nielsen//Netratings and ComScore Media Metrix have each established that for several years the average user of the average American newspaper Web site visits 2 to 4 times per month. Even if we generously use the high figure (4) in the Journal‘s case, this means Friedman’s site would have had approximately 375,000 unique monthly users [50K daily x 30 days ÷ 4 = 375K]. Friedman says that in the almost three years since then, his site has generated only 2,000 paying subscribers. That’s indeed less than one percent of those users.
In January, the Newspaper Association of America’s Connections online publishing conference held a panel on paid access. One panelists was Terry Bergin, Director of Marketing & Internet Services for the 70,000 daily print circulation Cedar Rapids Gazette of Iowa. Like Friedman, Bergin is probably under terrific pressure for his site to earn revenues online. He was on the panel to tell the audience about the Gazette‘s ‘success’ at charging for access. Bergin told the audience it had indeed been a ‘success’: his newspaper Web site was now generating $45,000 annually in revenues. Some of us in the audience leaned forward to make sure that we’d correctly heard him; had he said $45,000 or $450,000? No, it was the smaller amount. Bergin said this $45,000 in revenues was a great success because his site hadn’t been earning any revenues before it began charging for access.
When a publisher, exasperated at online losses, declares that the site will now charge for access, the results are generally traumatic but the continuing growth of Internet usage tends to mask that trauma. Friedman notes that since closing off his site almost three years ago to all but paying subscribers and print edition subscribers:
- Page views are up 30 percent; our advertising revenue is up more than 50 percent. And our print subscriptions are not falling.
During the past three years, page view counts for most free-access newspaper sites have grown 50 to 90 percent. Moreover, the one percent of site users who are willing to pay for access do tend to use a site much more frequently than the 99 percent who aren’t willing to pay. Add to that the 35,000 print subscribers of the Journal who have free access to the site and it’s not hard to understand how Friedman’s site would have a 30 percent increase in page views during the past three years despite charging for content.
Why would the Journal site’s advertising be up 50 percent in the past three years of charging for access? We believe this is most likely because the site might have then have gotten serious about advertising sales & marketing and about tie-ins between print and online advertising sales. This tends to happen whenever a publisher puts his foot down about previous online losses. However, we admit that this is only a presumption about the Journal. We have no actual documentation or inside knowledge for any other reason.
We don’t understand why Friedman would mention that the Journal‘s print subscriptions haven’t falling due to the newspaper’s site charging access while still giving free access to print subscribers. Cannibalization would be a concern only if the site were free access, not paid access or paid access but free to people who subscribe. Perhaps Friedman mentions it because his OJR article mentioned anecdotal reports that the free site might have been cannibalizing print circulation. Again, too many publishers based online publishing decision upon anecdotal or superficial thinking. Surveys by Beldon Associates in North America during that time revealed that operating free sites weren’t cannibalizing newspaper print circulation. Business decision should be based upon evidence, not anecdote.
Friedman reports that charging for access has brought it only $100K. That amount doesn’t include any ad revenues. Friedman says that ad revenues have increased 50 percent since charging for access began, but he mentions no net advertising dollar amounts before and after charging began. We suspect that the Journal can now charge a higher online ad rate (maybe twice as much) because the site now has only paying subscribers (or print subscribers) access it. Yet, that audience for advertisers is smaller, which tends to keep advertisers’ own results from the ads low.
If the Journal is earning $100K or $250K or even $500K by selling advertisers its now smaller but paying audience, even adding the $100K in online subscription revenue to that probably means this site is earning half or less than an equal-sized newspaper’s free site with a coherent advertising & marketing plan.
- “As I recently told a crowd at the World Association of Newspapers conference in Ireland: ‘It’s time to declare the free content model has failed. Quality content is too expensive to produce and too valuable to its readers to give it away. In fact, the act of giving it away devalues it even more.'”
That ringing declaration sounds good, but is as superficial as all dogma. Friedman attempts to portray his idea as a trend, but the examples he provides are superficial and don’t withstand examination:
- “The Wall Street Journal charges. Consumer Reports charges. Encyclopaedia Britannica and The Irish Times charge. From Mexico to England, newspapers are charging for access to their Web sites. Local newspapers charge as well, including The Columbus (Ohio) Dispatch and the Tulsa (Oklahoma) World.
Examine those examples. As Neal Budde, the founder and publisher of The Wall Street Journal‘s online edition (who recently retired from that job), reminded the NetMedia Conference this summer, WSJ.com has never been profitable; generated only 60,000 paying subscribers during its first year of charging; took nine more years to gain another 600,000 subscribers; hasn’t seen that subscribership increase in a few years; and isn’t a general interest newspaper. Budde said he wouldn’t recommend that any general interest newspaper charge for access.
People who provide Consumer Reports as an example of a publication that has chosen the paid online access model over free but advertising supported model omit the fact that this magazine accepts no advertising. Duh! Consumer Reports certainly isn’t going accept online advertising, so it must use the paid access business model. Moreover, Consumer Reports can successfully use the paid access business model because it has truly unique content that isn’t comparable to newspaper content.
If content were king, Encyclopaedia Britannica would be emperor. But it failed to develop any coherent online business plan until it went bankrupt (largely due to the Internet, by its own admission). In their book Sense & Respond, which is about doing business in the Information Age, Harvard Business School professors Stephen Bradley and Richard Nolan note that, “The publisher of the Encyclopedia Britannica is a now infamous example of a firm that did not understand how technology would affect its industry.” Having lost whatever position it could have had during the first ten years of consumer use of the Internet (EB could have been Google, had it combined its own resources and a search engine strategy, as many consultants told it during the 1990s), EB is now being published online by new owners who weren’t able to use a free but advertising-supported business model because the prior owners had egregiously failed to develop sufficient traffic for the site. The horse for that business model had long ago left the barn. The new owners are having to use a paid access model by default.
As for The Irish Times example that Freidmain mentions, there we have first-hand knowledge of the contrary. We were its online publishing consultant until 2000 — when it decided to charge for access. As has been reported here and elsewhere, charging for access proved disastrous for it (Ireland.com). It used to have 1.2 million unique users as a free site but has been able to signup only about 7,000 of them as paying subscribers during the past 2 and one-half years. Its pageviews fell by more than 70%, with its online advertising revenues dropped accordingly. The executive who recommended and implemented its conversion from a free to a paid access site was summarily sacked. It is an example of what not to do.
Borrell Associates and Belden Associates in North America and Pressflex in Europe has studied the newspapers that have converted from free to paid access and have yet to find a successful example.
- Friedman mentions that,“Bernard Gwertzman, the former online editor for The New York Times, recently told OJR that he believes it is time for some publications to look at switching from free to fee.”
Yes, but Bernie’s bosses know better. New York Times Digital CEO Martin Nisenholtz and Vice President of Marketing Craig Calder have repeatedly said that they see no way that NYTimes.com or Boston.com would ever convert from free to paid access. They see no paid access business plan that would work. Nisenholtz has told online publishing conferences that he believes free access is the best business model for newspapers.
- Friedman notes that, “Time Warner has jumped on the subscription bandwagon by charging to access some of its magazine sites, including Time, Entertainment Weekly and People. Sports Illustrated recently announced that it plans to start charging to access parts of the SI.com Web site.”
As we’ve elsewhere previously and repeatedly noted, Time Warner is the example of a failed online strategy. For nearly a decade, its Pathfinder venture was the oxymoron for clueless online publishing. It’s retreat from the free access model is just that.
When less than 75 of the world’s 6,000 daily newspaper Web sites begin charging for content, it’s not a trend —. It’s just a bad reaction caused by clueless business policies.
Friedman adds some more dogma:
- “I think the ABQjournal model can work at all newspapers.
“Readers need what you have to offer. And if you stop giving it away for free, they will pay for it.
No, one business model won’t fit all newspapers online. Unlike with print, online business models aren’t communitative (as we’ve previously written elsewhere). To think otherwise is superficial. Any business model that converts one percent of the site’s users and forsakes the other 99 percent, isn’t something that should be recommended industrywide.
And Friedman’s later statement is simply a restatement of the ‘if you build it, they will come’ fallacy. ‘If you charge for it, they will pay.” No, if you do stop giving it away for free, unfortunately less than one percent will pay for it.
We’re sharply criticizing Friedman’s OJR article not because he had any bad intent or bad motivation (he certainly didn’t) but because it is yet another drumbeat by a well-intentioned but mistaken band of people who advocate charging for content no matter what. The more they’ve played, the more strident our replying tone has become
What could Friedman have instead done when faced with his boss’ demand that the site charge for access? If he couldn’t dissuade his boss, he faced a choice of either acquiesing to that bad decision or doing what Derek Fattal did when faced with the same choice two years ago at the Jerusalem Post: quit. A bad dilemma either way.
Ultimately, we were somewhat amused that Friedman ends his article with:
- “As with any addiction, you are never cured. You will find yourself wishing for the days of free. You must adhere strictly to these 10 steps if you wish to move forward with a sustainable business model supported by a qualified, paid circulation base and a strong advertising component that will let you do what you really want to do: quality journalism.”
He inadvertently reflects the opposite of what we wrote 13 months ago in our monthly Publishing: Free to Fee column for JupiterMedia’s ClickZ.com:
- “‘Would you care to try it?’ Sherlock Holmes asked Doctor Watson. The master detective mainlined cocaine three times a day at the start of Sir Arthur Conan Doyle’s famous detective novel, The Sign of Four.
“The good Dr. Watson admonished Holmes for his drug use. In later stories, Holmes has apparently kicked his drug habit (not actually illegal in Britain until the Dangerous Drug Acts of 1965 and 1967).
“Most Internet publishers aren’t as smart as Holmes. Nor are they using as potent a drug. Desperate for online revenue kicks, they’re addicted to a lousy 1 percent solution for their online revenue woes.”
Avoid the latest online publishing vice. There are many things for which newspapers can charge online, but access isn’t one. The problem is the newspaper’s content, not the newspaper giving it away for free.
Vin, this is an excellent rebuttal to the proposition that there is an “Albuquerque model” for success in online publishing.
I would add a couple of points:
1) I am willing to accept the possibility that for small-market newspapers (say, circulation of 25,000-50,000 or less), a paid content model is appropriate. These papers simply have less original content (increasing the risk of Web cannibalization), much of that content (say, coverage of high school sports) is truly unavailable elsewhere, and there is an opportunity to collect subscription revenue from people outside the market (say, people who’ve moved elsewhere or have family in town) who won’t be interested in in-market advertising.
2) Charging for content is a perfectly reasonable business strategy if your primary goal is to protect the print newspaper’s circulation. While there’s little evidence that putting content behind a subscription wall will prevent cannibalization, if you’re losing print customers already, in the short term it might be the response that produces the best bottom-line results. Among other things, for at least some of your print subscribers, it provides one more incentive to keep subscribing to the paper. Over the long term, though, by closing off the Web site to occasional users who aren’t ready/willing to pay, you are reducing the value of your brand in the marketplace — and, therefore, the long-term value of your business.
Anyone who is inclined to choose this approach should first read Clayton Christensen’s book “The Innovator’s Dilemma.” Many successful businesses facing a disruptive technology react by trying to protect their existing business. IN the short term, it can work (and since short term is often all today’s corporations care about, this behavior can be rewarded inside corporate HQ and outside among investors). But “The Innovator’s Dilemma” establishes clearly — based on historical evidence — that protectionist/defensive tactics in the face of disruptive technologies will ultimately prove fatal to your business.
Your central point — that we need to break free of this somewhat tiresome debate over “free vs. paid” and, instead, focus on real business plans and their execution — is right on.
Rich Gordon
Chair, New Media Program
Medill School of Journalism
The fool that wrote this article is completely naive about the present day Internet model. People buy newspapers to find the sales for tires, clothes, etc. and the news. They go to the Internet for content and hate the ads. This is why sites are going to fee basis. If the author had to make a living from a web site, he’d understand. Otherwise, he is just another academic-sounding idiot with brain candy logic.
[The author replies: I actually earns his living entirely from profitable online publishing business models and haven’t collected a salary or paycheck since 1996. I agree that most people hate online advertising, but know this is because almost all of it is intrusive and untargetted marketing that neither fits their interests nor is a true use of the New Medium for advertising. Marshall, I’ll see a neurologist about the ‘brain candy logic’, but I meanwhile enjoyed the article on your YOWUSA.com site about the impending XKBO (Planet-X Class Kuiper Belt Object) flyby and the anticipated return of the planet Nibiru. Thanks for your comments and write us whenever you next land on Earth.]
Why say “we” when you’re just one person? Or is Vin Crosbie a composite or something? It sounds like you’re delivering the opinion of more than one person.
[Author’s note: The ‘we’ are multiple people. I write most but not all of the items. For example, the initial posting about Editor & Publisher magazine’s conversion from weekly to monthly were those of Digital Deliverance EVP James Tailer. I agreed with that posting and so, when E&P in response sent its media kit and other material to me, I wrote the follow-up posting after E&P. We have also included ideas from our friend, Ron Currier, CTO of PublishMail. — Vin Crosbie
The authors view and conclusions support the old editorial adage that a newspaper should only provide news and not worry about profit. While circulation is not the big boy in newspaper revenue it does bring in over a million dollars a year per 10,000 subscribers. While most of this money does go to cover delivery and print costs it is a fool who thinks this money could be forgotten or made up in advertising revenues. If you ask any circulation executive they would tell you they would love to be able to forget about revenue goals but it is very few newspapers that will allow him/her to. Not to mention due to the hard economic tmes every budgeting session not only includes circulation volume growth but revenue as well. I am not sure what this authors background is but I can bet he was never in charge of anything required to make a profit. Sites should charge what they can bear, first to grow revenue for the business, second, to prevent people reading it for free when they are able to pay for it, and third to offset the cost of gathering the information. The author states that the cost of gathering information is so cheap as to be negligable. Maybe at the venerable NYT were the writers do not find it necesary to actually go out of the building to cover a story the cost is cheap. However, go to the small circulation newspapers where layoffs of newsroom employees as well as other departments are happening and see if those newspapers see the cost of news gathering cheap. The only reason in todays society information gathering is cheap is most people are going to newspapers web sites for the information and getting it for free as opposed to paying to have it gathered themselves. Newspapers are in a similar situation to farmers. They are bearing the main costs of gathering the information but are considered greedy when they ask people to pay for it. Not requiring payment for site acces actually requires print version subscribers to subsidies free access sites. One last point, until ABC recognizes web readership from free sites newspapers should not offer free access.
[The author responds: Dave, if newspapers were unable to publish or profit without circ. revenues, then the free circ. newspapers simply wouldn’t exist — including the free Metro dailies that that have firmly taken root in many European capitals and are beginning to show up here in North America. I don’t think that a printed daily should circulate for free, but some demonstrably do quite well. An interesting example was provided by the albeit weekly Village Voice in NYC, which doubled its circ. and ad revenue after switching to free distribution. However, my point was that newsprint purchasing, printing, and distribution costs don’t exist online.
I wrote that that the value of the information is so cheap as to be negligable, not that the ‘cost of gathering the information was so cheap as to be negligible’ as you misquote me. The cost is its worth to the publisher; its value is its worth to the consumers. Newspaper Web sites have tried to charge for content online but unfortunately charge several times what the market will bear (http://www.clickz.com/design/freefee/article.php/1574981). Your response mentions that newspapers shouldn’t offer free content until the ABC recognizes audits & certifies free content. If the purpose of a newspaper is the increase its ABC circulation, that would be true; but a newspaper’s purpose is greater: to distribute news & advertising for a sustainable profit, which it can do from a free Web site. For example, the Morris newspapers (all but one of its 20 daily under 100K circ.) profit quite well from their free sites.
When you state that ‘Not requiring payment for site acces actually requires print version subscribers to subsidies free access sites’, you’re forgetting who put the site online for free. The publisher chose to publish it that way; it is he, not his print subscribers, who subsidize his decision to do that. If he can’t profit online after he’s decided to publish online for free, then he should take the blame, rather than claim that his free site’s users are forcing subsidization by his print subscribers. If you choose to sell something in two markets and you fail in one, you shouldn’t blame the purchasers in either.
I’m guessing that you’re the Dave Horchak who did an excellent job as Circ. Manager in Brattleboro VT, and at the Times-Standard, and now the Trib. You mention that, ”The only reason in todays society information gathering is cheap is most people are going to newspapers web sites for the information and getting it for free as opposed to paying to have it gathered themselves.” However, recent surveys by Beldon Associates and Borrell Associates in the North America and by Pressflex in Europe have each shown that most users of newspaper Web sites have never been subscribers or single-copy purchasers (not even before the Web) and that newspaper Web sites don’t really cannibilize print circulation (instead, they actually increase print circ. by a few percent). Believing that most people will go the newpaper’s Web site to get news for free rather than paying for a printed edition is an anecdotal fallacy dispelled by the actual data and research.
You said you didn’t know the author’s background. It’s detailed on this site’s staff page. I’m a 5th-generation newspaper publisher; product of the RIT School of Newspaper Management; a former UPI and Reuters; former publisher and current board director of a profitable 10K-circ. daily in Conn.; columnist for the International Newspaper Marketing Association and write JupiterMedia’s ‘Publishing: Free to Fee’ column about how to charge successfully for online content; am contributing editor of the American Press Institute’s NewsFutures newsletter; a contributor to the Poynter Institute’s ‘E-Media Tidbits’; and worked for quite a few years in circulation departments. Newspaper profitability is my life. — Vin Crosbie]
The sad truth is tht cost of content production isnt directly related to the willingness of users to pay.
To be fair, content comes at a price. Its the problem of finding a consensus price for the buy and sell sides like other commodities. There are however, many practical difficulties (micropayment, ads, etc.)
Vin you impressed me with your quick response and ready facts, plus the info you had on me. Me thinks big brother is watching. However, you still have not convince me of your point. To further my arguement I will have to delve back many years to the days of my college accounting classes. I did not do well so bear qith me on the simplistic explanations. There are two types of costs in business fixed and controllable. While most costs have features of both they can be seperated. In the newspaper business your expenses for the most part are building, equipment, staff, supplies, electricity, etc. While you can to some extent control some of these you will incur them. Now just because you are currently covering your expenses with advertising and circulation revenue does not mean if you find another market for the same product you do not therefore allocate some of the expenses to this new market. A current example of this is the pharmaceutical industry. We in the US are paying higher prices for R&D and folks around the world are paying lower costs for the same meds that were paid for with US Dollars. Mostly as a result of government interference. Is it right for all the R&D dollars to be paid by the US consumers? Would it be right to prohibit ill people from other countries from having medication that could help them if they could not afford the higher prices? If no is it right to prohibit poor people in the market paying for the R&D since if they cannot afford it? The few free circulation newspapers have one thing in common. They are all in major metros with populations so large you can make a profit if you hit 1% or less. Most of them are also backed by a major company risking investment capital in the hopes they succeed. I do not have actual financials but just because some website are showing profitability does not mean they are. True profitability is paying all cost associated with the endeavor and not getting a free ride on anything. In my personal experience with MediaNews our internet division was showing a nice profit. This came by charging all the newspapers a hefty fee for support even if the site never actually benefitted from the service. In addition I have worked at newspapers that were budgeted to realize a certain amount of growth in internet. the result was a forced buy to the advertiser. Classified ad prices were raised and retail ads were charged a required $5 extra to appear on the website. The customer did not have an option and often complained as a result. Would these sites have been profitable if they had to fly it alone? I think not. In addition you mention it was the publishers call/mistake if they originally provided the site free and could not make it profitable. Many businesses operate on the model of an initial free period with an eventual cost. Free interest on purchases, free HBO for 3 months if subscribe for a year, No payments for 18 months with a puchase of $2,000 etc. Why should we expect the internet to be free. I am sorry I misquoted you when I thought you said that the information was cheap to collect instead of little value. I actually disagree even more with this supposition. If the value of the information is so minimal why is anyone even bothering to read it let alone pay for it. In closing I agree a newspapers objective is to collect and distribute the news and an acceptable profitable level. However, if we can increase the level of revenue we can increase the size and quality of the product with the additional funds.
Excellent arguments, Vin and Rich. Look at the 750,000 unique users that signonsandiego.com attracted during the week of the fires with their excellent coverage — they’ll keep a lot of them. What happens if there’s a disaster in Albuquerque? The Journal will not only be doing its community a disservice if it doesn’t make real-time information available to everyone who wants it, it also will be losing tens of thousands of potential new readers and customers for its advertisers. The winning business model for media remains the same as it’s been since magazine publishers came up with it in the 19th century — amassing groups of readers with common characteristics desirable to advertisers.
Vlae Kershner
News Director
SFGate.com