Monday, June 11, 2007

We've always given it away

One of the first things I learned as a novice reporter at a daily newspaper was that the quarter dropped in the newsbox – yes, it was only 25 cents in the early 1980s – and the buck-and-change collected weekly by the kids on their routes paid for the newsprint, ink and, maybe, the cost of delivery.

My salary and that of the other reporters, editors, photographers and artists – the full cost of gathering and reporting the news – came from advertising revenue.

It’s local businesses that pay for the news – not readers.

That’s the way it’s been for more than 100 years – ever since the birth of the “penny press,” when publishers discovered there was more money to be made selling readers to advertisers than news to readers.

And that’s why I’m mystified so many leaders in the newspaper industry want to start charging for news posted on the Internet.

Latest to weigh in is Al Neuharth, the 83-year-old former chairman of Gannett Co. and founder of USA Today.

“Instead of free newspapers, newspapers will begin to charge what they're worth,” he predicted in an interview – freely accessible, it’s worth noting – on Advertising Age’s web site.

Pioneering the path is Walter Hussman, the publisher of the Arkansas Democrat-Gazette, in Little Rock and two or three other papers in Arkansas, Neuharth said. “The reason I know him so well and admire him so well is that he put news in the paper and charged for it.”

Hussman forcefully argued the case for demanding readers pay for the news in a widely quoted Wall Street Journal op-ed piece last month.

“Not many years ago if someone wanted to find out what was in the newspaper they had to buy one,” Hussman wrote. “But not anymore. Now you can just go to the newspaper's Web site and get that same information for free.”

Hussman obviously has a point. Free news on the Internet certainly means some readers will cancel their print subscriptions. (Exceptions to this rule are the handful of national papers, including the New York Times and Washington Post. For these lucky few, such circulation losses are more than offset by huge increases in new readers across the nation and globe who otherwise can’t afford or don’t have access to the print editions.)

Where Hussman is off base is in assuming he can maintain his online audience after limiting his newspaper’s Web site to subscribers to the print edition or those willing to pay an equivalent amount.

The problem with that strategy is that many readers will balk at what they consider double billing. People who get their news from the Web already are paying much more for the privilege than newspaper readers pay. First they must buy a computer, then pay a monthly fee for Internet access.

These costs are the exact equivalent of a newspaper subscription in that they offset the cost of delivery and presentation of the news – but not the cost of producing the news.

The real question is whether readers will pay an additional amount for the content of the news?

Hussman doesn’t face up to that issue. Instead, he cites a dubious comparison to Ohio’s Columbus Dispatch, which stopped charging to read news on the Web in January 2006.

In the six months ending Sept. 30 of that year, the Dispatch saw a 5.8 percent drop in daily paid circulation and a 1.1 percent loss on Sunday, compared to 2005.

Over the same period, Hussman’s Arkansas Democrat-Gazette was down only about a half-percent daily and 1 percent on Sunday.

Hussman sees this as evidence of success of his business model.

I have a different read: It’s more likely Hussman has staunched the bleeding of readers only temporarily.

That said, it still may be the best strategy – albeit, a dead-end one – for most newspapers.

That’s because the alternative advertising model isn’t working for newspapers.

Hussman does the math:

“The Inland Cost and Revenue Study shows that newspapers will generate between $500 and $900 in revenue per subscriber per year. But a newspaper's Web site typically generates $5 to $10 per unique visitor per year. It may be that newspaper Web sites as an advertising medium, and free news, just can't generate the revenue to sustain a valued news operation.”

Hussman doesn’t offer an explanation why. That’s understandable because the answer is something newspaper owners don’t like to talk about. It’s the secret to their inordinately high profits: the monopoly on local daily advertising.

The reason print subscribers are so valuable is because newspapers can charge commensurately high advertising rates. Local businesses have no choice but to pay because they have no other way to reach customers so effectively.

Radio and television aren’t real threats because of a crucial fatal limitation of broadcast media: viewers and listeners must be present when the advertisement airs or the money is wasted.

In contrast, newspapers wait patiently to be read – as does the Internet.

But unlike newspapers, which require huge capital investments in buildings, presses and trucks, the Internet is open to anyone with a personal computer.

The Internet’s minuscule entry fee is why print subscribers are 100 times more valuable than their on-line counterparts. It’s basic supply and demand in a competitive marketplace. A newspaper that tries to raise its Web ad rates can be underbid by a myriad of competitors.

The key to making a bundle on the Internet is volume, volume, volume. Google charges advertisers pennies, but those pennies add up when multiplied by the hundreds of millions of users of its search engine.

But most newspapers are local by nature, their territory set by their retail markets. There’s no way even national papers, such as the New York Times, can draw those kinds of numbers.

Without those huge audiences, the revenue from on-line advertising can never replace diminishing print advertising.

And as much as publishers say they value journalism, reduced profits – or the prospect of no profits – will mean more cuts in the newsroom.

Next: W(h)ither journalism?

Wednesday, May 16, 2007

The little paper that could

Of the many bad decisions contributing to the demise of Knight Ridder newspapers, one of the worst was forcing all the chain’s Web sites into the straitjacket of Real Cities in 1998.

Just when it should have been encouraging the 32 papers in the chain to try anything and everything to find the best way to present journalism on the new medium of the Internet, Knight Ridder corporate squelched innovation in a premature attempt to make money off the Web.

Water under the bridge, perhaps. But for a hint of what a little creativity can do, check out the Web site of the Chronicle-Telegram, a mid-sized daily in Elyria, Ohio. (Disclosure: The Chronicle was my first daily. I worked there from 1980 until 1991, when I moved to the Akron Beacon Journal, a Knight Ridder newspaper.)

Instead of the ubiquitous and criminally dull laundry list of breaking story headlines, the Chronicle’s site feature a slide show. Clicking on a photo takes you to the story.

Simple, inexpensive and effective.

There's more. Click on one the videos listed on the left of the home page.

Wait a minute, you say. Where does a local newspaper like the Chronicle-Telegram get the servers with the bandwidth capacity for video?

The Chronicle’s remarkable simple answer: Upload the videos to YouTube.

Stop and think. How many times have you read mainstream newspaper publisher and editors complaining about Google making billions by linking to their content without paying?

Instead of joining the chorus of whiners, the Chronicle is using Google, which purchased YouTube late last year, to deliver its videos -- all 253 of them, at last count.

Google gets the content and, in return, pays the cost of transmission. The newspaper reaches a wider audience at no cost.

Talk about a win-win.

Tuesday, May 1, 2007

Enough with the hand-wringing

So what if we don't know where we're going. We can still smile at this nostalgic look at our past. (Credit for the link to Oliver Luft, Greenslade and San Serif.)

Sunday, April 29, 2007

Google isn't the problem

Doubtless Sam Zell knows a lot about real estate. He made most of his billions in that business.

But he clearly doesn’t know much about the Internet – or the newspapers industry he just bought into.

Zell, the Chicago magnate who won the bidding war for the Tribune Co., caused a stir last week when he fired a shot across Google’s bow during a speech at Stanford University.

If all the newspapers in America did not allow Google to steal their content for nothing, what would Google do, and how profitable would Google be?" he asked.

“Not very,” was his answer.

That was a welcomed clarion call for frustrated newspaper folk helplessly watching their print ad revenue steadily drop while Google rakes in millions more each month.

The only problem is Zell’s answer was wrong. So was the premise of his question.

As many commentators pointed out, the fountainhead of Google’s ever-growing profits is its ubiquitous search engine. Google doesn’t “steal” content – it finds it and links to it. Newspapers sites are a tiny fraction of what’s to be found on the exponentially growing Web.

As for national and international news, Google and Yahoo already have deals with some major players, including the Associated Press, to provide all the content they need. Google simply has no reason to pay for local news that isn’t of interest to the vast majority of its world-wide users. And it's local news – the core franchise of most newspapers – that's at issue.

Of course, newspaper could start charging for stories any time they want either through subscriptions or per-story payment. But that's been shown time and time again to be a failure. (The Wall Street Journal serving as the exception that proves the rule.)

One argument offered is that newspapers must unite to demand payment: If all newspapers charged, people would have no choice but to pay up.

OK, let's say that happened
– although it likely would take an act of Congress to grant the necessary exemption from antitrust laws.

What then?

Think about it. Wouldn’t there be a slew of Web sites pop up in every city offering local news? Without the cost of printing presses and delivery, the startup costs would be minimal.

And who would be reporting, writing and photographing the news? A bunch of amateurs?

Not necessarily. How about the hundreds of veteran newspaper reporters and photographers laid off or bought out in the last couple years.

How can these small outfits compete with established names such as Zell's newly acquired Chicago Tribune, LA Times, Baltimore Sun and the other papers in the Tribune chain?

How would people learn about these new local news sites? Who can provide an economical way for local businesses to place ads on their pages?

Do you suspect Google might be able to provide some help in those areas?

Welcome to the Internet, Mr. Zell.


Saturday, April 28, 2007

If the Times can't make it, nobody can

Speculation that frustrated New York Times stockholders might bring management change to the nation’s newspaper of record is obscuring a much more important story.

Unless there's a revolt within the Sulzberger clan -- and there's no hint of that – the stockholder grumbling is going nowhere. The two-class stock structure that gives the family control of the paper and so angers other stockholders is doing precisely what it was designed to do – insulate the newspaper from short-term profit demands of Wall Street.

Publisher and board chairman Arthur Sulzberger had it exactly right in pointing out that stockholders knew what they were buying.

For me, the story isn't stockholder grumbling. It's whether the Times succeeds in transforming itself into a primarily Internet enterprise.

That's clearly the goal. Sulzberger revealed as much when he said a couple months ago that the Times had to be prepared to go paperless within five years.

The management of the Times -- more than any other newspaper – has a vision of the future and a plan to get there.

In moving to the Web, the Times' role as the nation's paper of record gives it a tremendous advantage. Most newspaper Web sites compete with their paper product. I can't cite specific research, but I suspect that the number of Chicago retirees in Florida who use chicagotribune.com to keep up with the Cubs is largely offset by locals who dropped their subscriptions because they can get what they need free from the online Tribune.

Not so the Times, whose Web site is pure gain. The weekday circulation of the Times is just over a million. But nytimes.com has 12 million unique viewers daily. Not in Google's league, but it's more than any other newspaper’s site.

With all this going for it, the New York Times has a better chance of crossing over to the Internet promised land than any other newspaper, with the exception of the Wall Street Journal. (The Journal has its own advantage – unique among mainstream newspapers. It's seen as a necessity by its core readers, who have demonstrated they’ll pay for the online version. A subscription is literally written off as the cost of doing business.)

But what if the Times doesn't succeed?

Last week, the Times downgraded its forecast of a 30 percent increase in Internet revenue this year.

This was scary. If the Times -- with its millions of additional readers on the Web and managers who know what they are doing – can’t find a way to make enough money online to offset the losses in the printed product, what chance do other newspapers have?

I'm optimistic the Times will succeed. But I think it will be a close call. The problem on the Web is the constantly growing competition for eyeballs spreading thin a fixed amount of advertising dollars. Twelve million Web viewers translates into a hell of a lot less ad revenue than 12 million subscribers to a printed newspaper.

In any case, I think we'll know the answer soon. I think Sulzberger got the time frame right: less than five years.

Friday, April 27, 2007

Is this the future of local news?

What makes Crosscut, a Seattle-based startup, worth watching is its emphasis on local journalism.

The “About Us” spells out a hyper-local manifesto:

“Crosscut is a guide to local and Northwest news, a place to report and discuss local news, and a platform for new tools to convey local news. The journalism of regular citizens appears alongside that of professionals. News coverage with detachment, traditionally practiced by mainstream media outlets, coexists with advocacy journalism and opinion.”

While Crosscut uses reporting from contract writers and freelancers, much of its content consists of links to and commentaries on stories in the Seattle Times and Post-Intelligencer.

A FAQ shrewdly anticipates the critics:

Aren't you just leeching off existing media by writing about and linking to their stories?

“We send those other news sites readers they otherwise might not have. We encourage them and promote them by highlighting their best journalism. The Web is a new kind of information ecology of sharing and partnering. Though they practice important journalism, self-contained, full-service news outlets no longer rule.”

I think that answer nails it. Traditional media – especially newspapers – “no longer rule” because sites like this undermine their last line of defense: their franchise on local news.

How can newspapers respond to this latest competitor for the advertising dollars?

Certainly not by charging for stories online. That would open the door wider for outfits like this to provide more local news.

Would their stories be as good? Perhaps not, but they would be free.

And as Craigslist proves, you can’t beat free.

Thursday, April 26, 2007

Times launches seamless hypertext

There's an interesting new hypertext feature in the New York Times. Double-clicking any word or phrase in a story triggers a popup with one or more dictionary and/or encyclopedia references.

The Times rolled this out without any fanfare I know of. The only indication is an easy-to-miss sentence tacked on the bottom.

The source of the information is Answers.com. An earlier incarnation of the system, which debuted last September, was a bit clunky. It required the reader to hold down the ALT key while clicking on a word.

The system has some smarts. Adjacent words are scanned to factor in context. For example, an otherwise unelaborated reference to “Ike and Kay” in Maureen Dowd’s column last week correctly popped up President Eisenhower – not Tina Turner’s abusive husband.

The system is far from perfect.

Clicking on “News Corporation” in the second paragraph of today’s story, “Murdoch is Taking MySpace to China,’’ yielded only dictionary definitions of “news” or “corporation” – not the company.

Worse, the feature doesn’t appear to work with stories once they’re filed into the older-than-seven-days archive.

Despite the shortcomings, I’m impressed. The ease with which readers can look up unfamiliar words provides a welcomed retort to editors demanding all stories be dumbed down to a fifth-grade vocabulary.