Thursday, July 22, 2010

Making online journalism commercially viable

Now that the newspaper industry is starting to take online subscriptions (don’t call them “pay walls”) more seriously, there are many more questions than answers.

This is, of course, absolutely common among emerging business models and technology. We tend to embrace new technologies before we figure out how to incorporate them into our business models, which isn’t necessarily a bad thing. If we held technology back until obvious commercial applications were developed, it would put the brakes on technological development in a real hurry.

But that’s the view from 40,000 feet. If you happen to be running a newspaper during this Age of the Internet, which has brought with it the Age of Entertainment, embracing every new technology can pretty soon put you out of business.

For example, most newspapers put online for free the very same unique content (call it “news and information”) that they charged people for if it was printed on dead trees. The thinking was that this would somehow magically generate “traffic” and ad sales and would somehow enhance the newspapers “brand” with some kind of magical business benefit. It turns out that all it really did was to erode paid circulation and it taught a whole generation of young people that “information wants to be free.”

OK, all of this I’ve written about before ad nauseum. The big question now is, “OK, smart guy, what’s next?” I’ve thought about that.

The Internet is a remarkably efficient information delivery vehicle. It costs essentially the same to distribute 100,000 copies of a newspaper as it does to distribute one. That is not true, of course, of printed newspapers, which have a fixed cost per copy for printing and delivering. That’s the upside.

The downside is that the online product is not supported by advertising revenue, which generates 70 to 80 percent of total revenue for today’s U.S. newspapers. (Newspapers claiming to earn 8 or 10 percent of their revenue from online advertising are doing it by allocating certain percentages of print revenue to the online category, by bundling online and print advertising into a single buy, or a combination of both.)

In other countries (Japan and other Asian countries in particular), the newspaper model is the other way around -- about 80 percent of the revenue comes from subscription revenue. This happens in countries where newspaper readership per capita is much higher than it is in the U.S. and where cover prices for a weekday edition can be $2 or more. While the U.S. market won’t accept that for printed newspapers, it will likely have to learn to live with that online.

In other words, to make journalism as a blended print/online effort work in the long run, not only will readers need to pay for the online product, but they’ll likely need to pay more than they would for the same thing in print. The reduced cost for distribution is more than offset by the lack of advertising sales to subsidize the cost of operating the journalistic enterprise necessary to create “content” compelling enough to demand a fee.

For example, the Post Register now charges $14.50 per month for home delivery of the print edition (one of the lowest monthly rates anywhere). With that, you can request a password to the online edition for no extra cost (about 6,000 subscribers have done so). We charge only $6 a month for an online-only subscription. We have about 600 online-only subscribers, a number that hasn’t changed in three years.

That’s probably upside down. Not that we should charge less for the print edition, but the rate for online-only should probably be more like $20 a month. But it’s a conundrum -- not only does the lack of online advertising make online journalism less profitable, but a lot of readers consider the ads important content. So, as an online-only reader, you’ll likely end up paying more and getting less, at least in advertising. The upside is that you’ll get the interactivity, immediacy, updates and mobility that come with online.

Coming next at the Post Register very likely will be a nice upgrade to our web site with some new features and a better design. But it’ll likely come with a higher price tag to the consumer as we begin heading for the day with online journalism is funded more by subscriptions than by advertisers.

By the way, another conclusion to draw from this view of online economics is that print newspapers, magazines and similar enterprises are going to be around for a long time. Sorry to be sold old-fashioned, but there it is. I'm willing to bet a buck I'm right.

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