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September 15 2011

15:00

The newsonomics of 1, 2, 3, 4

Editor’s Note: Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

Ah, the joys of print — and real world — serendipity.

Arriving in Berlin to speak at the annual Medienwoche, part of the IFA 2011 content-meets-tech conference, I took a post-flight stroll around my hotel. I picked up a Wired U.K. at a local newsstand (newsstands chock-full of magazines and newspapers seem ubiquitous in Germany, their big-city absence in America made more noticeable). It’s a good issue, exploring the top digital entrepreneurial hotspots across Europe, from a U.K. perspective.

Across from p. 82, my eye caught a house ad. It was selling all things Wired U.K., but selling them in a customer-centric way I hadn’t before seen. Reproduced below, you see how it focused on how customers may variously access Wired. It speaks “multi-platform,” “multimedia” and “news anywhere” much better than those compounded nouns (which, when you think of it, are starting to sound like multisyllabic German constructions).

It’s masterful in telling the reader simply, and with a bit of fun, what the Wired U.K. brand stands for, how you can pick your timeliness (now to annual), mode of ingestion (reading, listening, or attending conferences) and more.

In a second bit of terrestrial serendipity, it turned out that Wired U.K. Editor David Rowan was speaking at IFA two hours after my talk. He and his art director, Andrew Diprose, had already supplied a digital copy of the house ad. I told him how well I thought the ad captured a business model in the making, with a clear customer-centric approach. He thanked me for the comment, and added, “It’s just something we tossed together when we had an extra page.” Well, it may have been, but it shows how this Wired crew is thinking of their business, eating some of the digital dog food it dishes out in each issue.

The ad had particular resonance this week as I’ve been thinking about the question on everyone’s minds in the newspaper and magazine businesses: What’s the new business model — that hybrid print/digital or digital/print — going to look like? It’s clear to everyone at this point that while print has a significant role for as far forward as we can see, it’s receding in importance, and revenue, and that digital is the growth engine on which to focus.

It’s one thing to say that and quite another to say what the new business model will look like. How much revenue will come from what, when, and who?

Now approaching 2012, we see that 2011 has provided a few clues to that new business model. No one, though, even the world’s digital revenue news leader, Oslo-based Schibsted (with 30 percent of overall revenues driven by digital) will tell you that even the industry’s leader has not yet found a big, sustainable model able to support a large newsroom.

Let me propose a model I’m testing out, as we watch the rollicking developments in the industry. As paid digital-access plans roll out weekly, as Digital First becomes not just a catchphrase but a company, as tablet development moves to the front burner and as the TV business continues to outpace both newspapers and magazines, what are the common threads we can see?

It’s purposely a simplified, bare-bones structure. I call it the newsonomics of 1, 2, 3, 4 and welcome flesh to be added to the skeleton — and/or chiropractic adjustment as well.

It’s 1, 2, 3, 4, as in:

  • 1 brand
  • 2 major sources of revenue, advertiser and reader
  • 3 products: print, computer, and mobile
  • 4G, as in the coming of faster connectivity

Let’s look at each one, briefly:

1 brand

The first decade-plus of the web was all about collecting, bringing things together. That meant major wins (63 percent of U.S. digital ad revenue in 2011 is going to Google, Yahoo, AOL, Microsoft — and Facebook) for those who aggregated. The act of collecting (curating if you prefer) was rewarded at the expense of those being aggregated. Now, as we approach 2012, we’re seeing a major re-assertion of brand, and its primacy.

Steve Jobs’ tablet-launching assertion that search is so yesterday was part sales pitch, part prophecy. The app is nothing if not the re-ascendance of brand, encapsulated in a few pixels. These tiny apps — from ESPN, The Atlantic, Time, the Guardian, and Berliner Morgenpost to The Boston Globe, The New York Times and the Wall Street Journal — all convey new promise. That promise has found a business model — all-access — to accompany. After years of wandering in the wilderness of customer confusion and self-doubt, news companies are saying: “You know us, you know our brand; you value us. Pay us once and we’ll get you our stuff wherever, whenever, however you want it”. Call it “entertainment everywhere” or “news anywhere,” or “TV Everywhere,” major media are now re-training their core audiences to expect — and pay for — ubiquity.

News companies are following the lead of Netflix, HBO, and Comcast (Xfinity), all now basing their hybrid old world (TV/cable/post office) and new world (smartphone, tablet, computer, and connected TV) on the same simple idea. In the first digital decade, news and entertainment was atomized by aggregators, dis-branded, as readers and viewers often flipped through Google, YouTube, or Yahoo without knowing who actually produced news or entertainment.

Now, we see brand re-emerging to signal top-of-mind awareness — and to earn those one-click credit card payments. These are friendlier brands, attempting to leverage and master the new social curation of news and entertainment.

2 major sources of revenue, advertiser and reader

For that first decade plus of the web, news publishers relied on one revenue source — digital advertising. That’s been like wheeling into the future on a unicycle, lots of careening and too little forward progress. As publishers have taken a long-term view of the business, the conclusion from Arthur Sulzberger and Rupert Murdoch to Dallas’ Jim Moroney and Morris’ Michael Romaner has been the same: We have little hope of creating a successful digital business without robust digital reader revenue. Reader revenue doesn’t have to be mean only digital subscriptions. Schibsted and Australia’s Fairfax are pioneering “services,” with Schibsted’s story-aided weight-loss programs prototypical. Newbies Texas Tribune and MinnPost are showing how reader-attended events are moneymakers. The tablet will spawn lots of new one-off paid reader products.

And advertising doesn’t mean just selling space. Most major news chains, from Advance to Gannett to Hearst, are becoming regional ad agencies, selling and re-selling everything from deals to Yahoo (or in Advance’s case, Microsoft) to search engine marketing to Facebook and Google to local merchants large and small. The New York Times pulled Lincoln “ad” money into digital circulation push. Sponsorships are coming back in a big way for mobile.

So, two revenues, tried, true, but twisting new. Will they be 50/50 supports of new models? Too early to say, but they provide us the rivers and tributaries to build new revenue stream models.

3 products: print, computer, and mobile

“Online,” of course, was first re-purposed print. Too much of mobile is, again, re-purposed online. Yet, the smarter all-access players, mostly national, are looking at their audience data and seeing how different usage is by device or platform. There are new products — MediaNews’ TapIn is emblematic — that are made for the tablet, with even smartphone utility in question and desktop a distant third. We’ll see three distinct ways of thinking about product: print, lean-forward desktop/laptop and lean-back tablet/on-the-move smartphone. Newspaper print becomes just another platform. This triad becomes more than a smart way to think about product development — it becomes a way of measuring costs, revenues, and metrics like ARPU.

4G, as in the coming of faster connectivity

Only in the last couple of years have we passed 50 percent broadband access in the U.S., which currently ranks ninth worldwide at 63 percent of households. We’ve forgotten the days when pressing on the play button on a website’s video player was a crapshoot. Between buffering and bumbling of all sorts, video only sometimes worked. Now, take a look at the just-launched WSJ Live on the iPad, and you see how far we’ve come. 4G is now on the mainstream horizon, and with it comes the higher valuing of news video. That’s a challenge for text-based newspaper companies, most of whom have taken only first steps to becoming truly multimedia companies. You can see the 4G glow in the eyes of John Paton’s new Digital First Media company. I’m told his New Haven Register now outproduces the local TV stations in digital video news creation; few newspaper peers can yet say the same. With ad rates for news video are still markedly higher than for text stories, any successful model must put video at the center of new products.

So, it’s 1, 2, 3 and 4, good tests of evaluating new company strategies — from the inside or out.

February 10 2011

15:00

The Newsonomics of overnight customers

Editor’s Note: Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

It’s a new epidemic of digital-pricing strategery, to borrow a fading term, now breaking out within the newspaper executive suites of the western world. Rupert will soon be charging 99 cents a week for The Daily, and dozens of dailies are laying out digital payment plans to be put into effect this year. Some are hiring top-drawer consultants to parse the many possibilities and run the odds of success before they throw the dice.

The questions are many. Do I charge print subscribers anything extra for digital delivery? If so, how much? If I add a fee for print subscribers, is it opt-out or opt-in? Do I offer a day pass or week pass, or just stick with monthly and annual subscriptions? If I put up a wall, where do I place it? Do I restrict content access by type — allowing free access to classifieds, commerce, and commoditized national and global news, but keep the somewhat proprietary local stuff locked up? Do I let readers read some — maybe 10 or 20 pages a month — of their choosing before making them pay to go further? How many bundles should I offer, and what’s in them?

We’re in uncharted territory. We know very little about consumer behavior when it comes to paying for journalism because the old, steady, entrenched models worked so well for so long that they barely changed over decades. Then the Internet came along and publishers felt compelled to give away their work for free — a subject to be featured in many psychology dissertations to come — as they abandoned, for a 15-year period it appears, a two-legged (advertising + circulation) business model.

A year from now we’ll have lots of data, parsed by all of us every which way from London to New York to Memphis and Augusta to Dallas to San Jose and Modesto, and then we’ll see what works, what doesn’t, and indeed, what “works” means in dollars (and pounds) and cents.

For now, though, the paid plans consist of commonsense, conjecture, conventional wisdom, consultant graphs, and, I believe, some fascinating assumptions about human psychology. On the eve of the launches of more paid offers, let’s examine four of those assumptions underlying this new era.

Let’s call it the newsonomics of overnight customers, which is our first psychological model, and one that I think may turn out to be the most promising.

Our four psychologies:

The psychology of the overnight customer

In north Texas, if you’re a Dallas Morning News subscriber, you’ll wake up sometime after March 1 (the loose date for the debut of the company’s digital paywall), and find that you no longer have a split identity. Though for 15 years you’ve been a “subscriber” for print and a “user” for online, you’re now just a customer. You pay your $30 or $33.95 (the new price as of Jan. 1) a month, and you get seven days of the Morning News and access to the Morning News’ new digital bundle, consisting of desktop/laptop, smartphone, and tablet availability.

That’s right. You’re no longer a “user”, a hateful term if ever one were invented, or a “visitor,” or a brother from another digital planet. Overnight, you’re a customer again.

In this psychology, a news company has put a value on what it produces. You, the customer, now are being shown that value. Maybe a year, or two, or three, from now, you perceive that value — forgetting all about those days of “free” — and value your relationship to the Morning News’ news, whether you access it by paper, phone, tablet, or TV screen.

The big hope: When you are ready to forsake pulp itself, you’re accustomed to paying for digital — you’re a customer of all, clearly — and do so without thinking twice. (And if the Morning News can save big bucks on not having to print and deliver a paper to you, and tens of thousands of your neighbors, it can significantly cut costs, increase profits, and maybe grow its news-gathering capability.)

We expect that after The New York Times’ finishes its own (higher-priced) pricing strategy, it, too, will offer print subscribers digital access as part of the coming “All-Access” bundles. Journalism Online says that about half of its newspaper clients will offer print subscribers no-extra-charge access to digital, while the rest will tack a small upcharge onto print bills.

This psychology, I believe, offers elements of a winning one. Why? It begins to change the artificial split between print and digital consumption. Most likely, it slows down — only temporarily, but every year makes a huge financial difference to news companies — print loss. Bundle it all together — print + digital — and there’s less incentive to drop print, even your use is declining. Less loss in the short-term helps retain print ad revenue, which is still 80 percent or more of all newspaper company ad revenue.

Secondly, it sets up publishers for the hastening print-to-tablet transition. If the kind-of-print-like tablet convinces readers to move away from print more quickly, the more they’ve been accustomed to paying for tablet digital, the less likely they are to balk at paying just for tablet digital.

Journalism Online cofounder Steve Brill will tell you that the company still urges publishers to charge something extra for digital access, even a $1.95 or $3.95 a month, often a 60 percent or more discount compared to what digital-only bundle buyers will pay. Whether you ask print subscribers to pay a small amount for digital access or give them access “free” as part of their print subscription (they still have to register for the restricted access even if no new payment is involved), they’re as likely to sign up for digital access, he says. If that holds, a small, incremental price itself may not be that much of an issue with print subscribers. Those that want it are as likely to pay for it as take it for “free,” as a new digital customer. It’s a way too early to know if that will be the case, but it’s one metric that should be at the top of publishers’ watch lists.

One way or the other, though, print customers are becoming digital customers, quickly. One key lesson here: It is newspapers’ print subscribers and regular readers who should be the likeliest to maintain their loyalty (and show the most willingness to pay of all potential audiences). In a sense, this is a back-to-the-future scenario, redrawing that big “circulation” circle as it was, but now including digital access.

The Forrest Gump psychology

Is a news site just a bunch of chocolates? If so, how important is it to allow would-be news customers to sample the wares before making them open their wallets? If you let them sample, can they sample all the treats, or just half the box — and which half?

Morris Communications’ Augusta Chronicle, partnered with Journalism Online’s Press+, now gives readers 25 pageviews a month before the paywall comes down, giving them access to the whole site. Dallas Morning News digital readers will find that most local stories — other than widely covered local news — have a small “D” symbol, indicating restricted access content that only print or digital subscribers can get access to. In Memphis, the current plan of Scripps’ Commercial Appeal is to start charging in the second quarter, but only for mobile access, while the website itself remains free.

Sampling is a big question. Print subscribers, who tend to be older, know what they are getting, while less habituated readers, who tend to be younger, may need to develop a habit. If sampling of the key, unique, proprietary stuff is made difficult, then how likely are news sites’ to develop a next generation of paying readers?

The psychology of the maze

So what happens when digital visitors bump into paywalls? Remember TimesSelect, and how disorienting that seemed to be to many. It makes people anxious to bump into a wall. Publishers hope that those who bump into walls (after 10-20 pageviews a month), and don’t pay, will come back the next month, and be more likely to pay then. Michael Romaner, head of Morris Digital, which has rolled out an Augusta-like model in Lubbock and plans six more similar rollouts by July 1 (and the rest of the company’s titles by the end of the year), says early data shows that 25 percent of those who ran into the wall paid up. Again, that’s very early data. Let’s see if that 25 percent number holds in Augusta and elsewhere, and what the tracking of the 75 percent — how many go away and never come back? — shows. How many just keep sampling, and are ad-monetized, but never fork over circulation dollars?

The psychology of the psych-out

Maybe news companies are overthinking all of this. Maybe they’ve psyched themselves into believing the world of free news content has really and profoundly changed — with little supporting evidence, other than a number of one-time news apps sales. It’s true that the metered systems, pioneered by the Financial Times and at the core of The New York Times’ and Journalism Online’s models, aren’t bet-the-company strategies. They are designed to keep the engine of growing digital ad revenue humming, allowing 80 percent or more of digital customers go on their merry non-paid ways, while turning those heavier digital readers into digital customers. If they succeed, they’ve picked up a new digital revenue stream, maybe laid down the first pavement to tablet utopia, and maintained a commitment to a digital ad future. All that combined may be just a middling success in revenue, though, as print (see both recent McClatchy and Gannett reports) ad revenues remain stubbornly negative.

If they fail — and that means losing more traffic due to paywalls than they anticipate — then news publishers have once again too strongly believed their own conventional wisdom and will pay the additional consequences.

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