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.