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Tuesday, September 13, 2005

Newspapers' struggle with the Internet will reinforce quality journalism

If our last posting about the obstacles in the way of online newspaper success made you curious, below are a few ideas for the future of online business models. The results will ultimately benefit journalism.

Vice President of advertising for the Newspaper Association of America, Mort Goldstrom made a quote in an article about Craigslist at SmartMoney.com that deserves some attention. He said, "I think that newspapers have been very quick to adapt online."

Mr. Goldstrom is definitely too quick to pat newspapers on the back.

He continued by trying to justify himself, saying, "If you look at the top 10 web sites of any individual local market, you'll find that the newspaper [there] is probably at the top of them," which is probably true seeing as the local paper is where a community goes for information, no matter what the medium. But that certainly doesn't mean that newspapers have adapted to the Internet, never mind 'quickly.' Many pundits still complain that newspapers have, in fact, been slow to adapt, that they have not adopted most of the content-enhancing advantages that the Internet provides, simply posting on the Web that which is printed in the daily paper. Consider the current crisis that newspapers are undergoing in large part because of the onslaught of growing Internet use further affecting already declining circulations, the multitude of news sources found online, their difficulties in charging for their Web content and the problems of online advertising profitability. In fact, when you think about the daily technological innovations, tech company buyouts and takeovers, analytical questions and studies, etc., the entire Internet industry, and its users as a result, are still adapting to the Internet as a phenomenon in many of the same ways. The Web, as well as newspaper websites, are still very young as consumer products. Nobody is really sure how they will evolve and many don't understand the essence of how they currently work.

Take for example the recent study published by University of Chicago economist Matthew Gentzkow (found at CyberJournalist) that studied the effects that the Washington Post's website has had on its print edition. Gentzkow concluded that the Post online costs the paper 30,000 copies a day in print circulation and USD 5.7 million a year. He argues that the Post should charge 20 cents a day for website access, a price that would minimize online reader loss and maximize the paper's profits, as long as the online advertising market continues to grow. Although it is a very well researched report from an economics point of view (including many economic equations and symbols that, quite honestly, mean absolutely nothing to me), it is inherently flawed on very simple grounds: Gentzkow studies only "individual-level data on the print and online newspaper readership of consumers in Washington DC..." His study immediately eliminates the essence of the Internet; that anyone anywhere has access to anything anytime. Let's take the same example, the Washington Post.

As of March 31 this year the esteemed Beltway broadsheet's circulation weighed in at 751,871 copies (statistics quoted in WaPo) which, according to a speech by Post Company Chairman and CEO Donald Graham at last years World Newspaper Congress in Istanbul organized by the World Association of Newspapers, are distributed no "further north than New York or any further south than Richmond, Virginia, about 100 miles from our headquarters building." On the other hand, in the same speech, Graham boasted, "1.3 million Washingtonians visit washingtonpost.com on a regular basis. Another five million Americans outside the Washington region - and more than a million international readers -- come regularly to our site, for a total online readership of 7.5 million." Not to be inconsiderate of Mr. Gentzkow's conclusions, but I'm willing to bet that a 20 cent a day charge to access the Post's website would cause the loss of most of those millions of readers mainly because they'll be able to read much of the same news elsewhere. The 30,000 loss in print circulation quoted by Gentzkow thus seems to be a reasonable sacrifice for keeping the Post online free of paywalls.

But, if they can't charge for subscription, how then are online newspapers supposed to make money? Well, the same way their print editions always have: advertising and circulation - but through pay models adapted to the Web.

Advertising: Let's continue with the Washington Post example. I read the Washington Post online everyday and in fact am looking at the homepage as I write this. On the homepage there is a fairly large advertisement for discount cruises leaving from the United States. I click on an article and the banner ad from an American bank is trying to sell me American savings rates. But I don't live in the United States. Like all those economic equations mentioned above, these ads mean nothing to me. I will never click on them. Essentially, myself, and the million or more other readers browsing the Washington Post's website from abroad read it completely free. The Post has little to no chance of ever making any money off of us due to the present advertising system.

Granted, the other 6.5 million Post readers in the States could be enticed by the national advertising on the site. But the conditional 'could' also demonstrates how newspapers are still adapting to the Internet.

The Web permits the power of precision. This can already be seen in advertising models such as GoogleAds that post ads according to the content on the Webpage. Other services track a user's habits and post advertising accordingly, for instance travel deals that follow someone who starts surfing at a travel site and then moves on to other subjects. Another evolving system works by pinpointing a user's exact location through WiFi in public places and posting ads for companies in the area. It is also quite probable that in the near future, Internet users will be able to choose the types of advertising they want to see, specifying through keywords and even companies. With like services, broad national ad campaigns that large metropolitan papers have depended on for so long are not likely to disappear, but will become less and less important and with them, advertising desks. In this respect, newspapers could lose control over much of the advertising that is on their site. The problem for newspapers with the type of Internet advertising that is evolving is that the host site only receives a small portion of revenue according to how many people click on the ad. The advertising profit margins print papers are used to thus seem unlikely. But in order to maximize them, newspapers of the future will more than likely integrate national and targeted advertising on the same page.

Circulation: Circulation is traditionally defined by how many full copies are distributed through subscription and individual sales. That definition changes on the Internet to mean page views. Instead of having to buy the whole paper to read articles, readers of Web news are free to pick and choose the articles that interest them, never having to click on any other article in the same publication if they don't want to. Thus, since readers have tasted this digital news freedom, traditional subscription services on the Web are bound to discourage traffic to a site (and conversely hinder the development of online advertising).

A solution to this problem has however been proposed long ago. It implies a system of 'micro-payments': similar to the way in which the owner of a website now receives a bit of cash for clicks on targeted online advertising, the owner of a paper would charge a small amount for each article read which would be automatically debited from an online account established by individual users. This system works better than Gentzkow's idea of charging 20 cents per day for the entire online edition because it maintains Internet freedom for the user who may only want to read one article in any publication. Additionally, it provides a number of options for the newspaper. For example, the paper may decide to leave news that can be found anywhere open to all for free. But that article includes links to the paper's own journalists' analysis of the situation, enticing readers to click for deeper info for which it could charge a few cents. It may find that people are willing to pay more for certain stories and price them accordingly. It could charge a small amount for photo essays and video. Taking the Washington Post example again, if it were to charge its 7.5 million readers per article instead of per edition, it would end up earning more revenue: many of those readers who scan the headlines and read an article or two would hesitate paying a daily fee for the whole publication but would pay a few cents here and there for an article.

However, in the same way that newspapers of the future will combine different advertising models on one page, they should also provide their readers with several payment options. For example, many newspaper readers may continue reading only one publication and will prefer paying a subscription in lieu of payment per article. Local papers that may only be read by a people in a certain region may find that a subscription works better. Considering this, it is clear that newspapers will have to experiment with different options before they find the payment plan or plans that best suits their readership.

Consequences: Both the Internet advertising and payment per article systems explained above turn traditional newspaper practices upside down: they will no longer be able to determine what kind of advertisements fill their pages nor will they be able to control the reader. But they are complementary. If consumers are paying for their online news per article, they will not want to be barraged by pop-up and banner adds, already deemed digital annoyances, that they don't care about. On the other hand, advertisements that tell them something about their likes and needs are more prone to clicks which translates into more revenue for newspapers.

Although it will take some time for newspapers to work out their online plans, these new business models will ultimately benefits the craft of journalism: content truly becomes the key to the online newspaper success.

The Internet is inundated with sources available immediately to anyone with the click of a mouse. Providing readers with the option of paying per article thus is a logical option because it will allow them to access these other sources for a minimal price. But it also puts a newspaper in direct competition with every source form around the world. The only way to keep readers coming back in the midst of such competition is for a paper to distinguish itself through its content. Once a print subscription package is sold, the reader is essentially forced into reading the paper's articles no matter what their worth. By paying per article, a paper's journalism will always have to be of the highest quality in order for it to survive because if a reader has a bad experience, he or she can easily get their news somewhere else with out worrying about the money they had spent on a long-term subscription... and can just as easily decide to never go back to that paper's site. Online news also entails a different kind of quality journalism because of the audio and video capabilities the Web provides. Newspapers will have to take advantage of these features, creating news packages, in order to enhance their reporting, stay ahead of the competition and maintain their readers.

Overall, referring back to Mr. Goldstrom who opined that newspapers had quickly adapted to the Internet, it is clear that they still have a lot of work to do. Those that make the developmental sacrifices now will be those that blossom in the future for the benefit of themselves, their readers and the art of journalism.

Sources: SmartMoney, CyberJournalist

Posted by john burke on September 13, 2005 at 02:17 PM | Permalink

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