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April 04 2013

16:58

Jeff Israely: Don’t you call me subsidized — people are paying for news

free-cc

Editor’s Note: Jeff Israely, a former Time magazine foreign correspondent in Europe, has launched a news startup called Worldcrunch. For the past three years, he’s been describing and commenting on the process here at Nieman Lab. Read his past installments here.

Three years ago, when I was taking my first baby steps from reporter to would-be newsbiz guy, the idea of making people pay for journalism online was all but dead and buried. Various experiments had failed over the years — freemium, premium, micropayments? Nada. Even as digital ad rates were already beginning to plummet, “free” was it: what the readers wanted, what the writers wanted, and even reputedly what the information itself wanted to be. News companies big and small were left to figure out how to develop their businesses accordingly.

Alongside this reality was an idea taking root that, truth be told, no one had ever really paid for news. Even back in the pre-Internet days, news had always been paid by someone else than the person actually consuming it. Whether advertisers, public funding sources, the draw of popular crossword puzzles and movie listings, or maybe just a truckload of cash from a billionaire — there was always someone or something else footing the bill for the poor slugs on the city hall beat or the over-fed foreign bureau.

News, we were told, has always been subsidized. Yes, that was (and still is) the word, the meme, the received wisdom and proverbial final nail for anyone who was still dreaming that paid models can give new life to news online.

With the help of his students and readers, NYU journalism professor and new media sage Jay Rosen compiled a running list of all the sources of news subsidies. This wasn’t just about whether or not some big news brand should or shouldn’t put up a paywall — the fact that news had always been “subsidized” was fundamental to understanding our work and our industry as we moved deeper into a disaggregated digital world of information production and consumption. Each individual piece of content could no longer rest on its laurels or flaunt its importance — the emperor was naked and the sports columnists and classifieds weren’t gonna be picking up the tab any longer.

I understood the point, I told myself, but was still puzzled by the argument — maybe even slightly offended by the word choice. After 18 years of earning what I thought had been honest paychecks, I was now being told I’d been “subsidized” all along. Hmmm…doesn’t sound so good. Like something Mitt Romney would say about welfare mothers.

But still new to the future-of-news debate, who was I to question? Looking around, virtually nobody was paying (or charging) for digital news, the old print model was dying, foreign bureaus were shuttering…and well, Jay Rosen was a pretty smart dude.

So, quietly, I accepted this foundational new media fact…embraced the meme. One late night I even sent in my own contribution to the running online list of subsidies, pointing out how a journalist about to launch a news startup might be subsidized by his wife’s good job in the public sector.

Though that last part was true, turns out the rest was not. The irony is that we needed to see people coughing up hard cash for digital content to remind ourselves that we have in fact been paying for news all along. Of course, we pay for other stuff, and every reader has his own mix of reasons for being there — but if there were no news, there’d be no there there — and ultimately, nothing to sell.

Whatever else it may offer, from wherever else the revenue may flow, The Dallas Morning News cannot exist — cannot be sold to readers or advertisers — if it doesn’t provide News about Dallas each Morning. You may declare that you “love Mario’s Place for the cannoli, but you wouldn’t go there if they didn’t also have good pasta and a nice wine list. It’s dinner, in a restaurant — not a pastry shop.

None of this is to minimize the scale of change in how we produce and distribute and consume news, or the challenge for the Dallas Morning News to reinvent both the menu and economics of the restaurant. But from where I sit in Paris, reliable daily (and hourly!) meals are still its best hope.

As always, it’s both more and less than a question of paywall or no paywall. Anyone charging for news must understand how to maximize the free digital circulation of information. BuzzFeed is not investing in top-shelf journalists because it wants to subsidize anything. Even Google, in the deal it recently struck with the French government to set up a fund for established news brands, acknowledges the value of professional journalistic enterprises. Of course, some might call that a subsidy, just as others in the newspaper industry have long accused Google of being subsidized by the news business. But both sides in this fight lose the forest for the trees.

More useful is to focus on the information ecosystem, a buzzword of its own from three years ago that I still think about all the time. Lots of people arrive at The Dallas Morning News or The New York Times or our little global startup thanks to Google. And though a relatively small portion of Google’s overall business, the traffic that comes from people who went online looking for news and journalism has the kind of value that you can neither measure, nor create any other way. Even such operations as the news services of Thomson-Reuters and Bloomberg, which in pure numbers are most surely fed (subsidized!) by the financial services arms of the parent companies, are nevertheless so “baked into” and integral to the overall operation that it is difficult to separate out the precise source of value for the brand and its various products.

And yet, even with the initial modest success of online subscriptions, the “news must always be subsidized” concept keeps popping up in influential places from smart people, often cited as the starting point for understanding where the industry is going. David Carr even used it recently to make the case for a paid model. Again, I think I know what he’s saying — but subsidy is not what we should call it. It’s the wrong word, an insidious word and a false premise. It’s also a recipe for defeat.

For those who think there’s something to be preserved in the professional production of journalism, who are betting on the evolution not annihilation of the news industry, there are some recent signs for cautious optimism. That people are paying directly for news is not just a welcome new revenue stream, but a confirmation that there is real hard value in our industry’s core product. It is by no means the end-all solution — but perhaps a new starting point.

Okay, enough pontificating — back to my day job: PLOTTING!

This post is meant to be the last in a three-part mini series on how a digital news startup addresses some of the big either-or choices. We’ve gone through B2B vs. B2C and quantity vs. quality. Here, it’s paid vs. free — and as you may have guessed, the answer for us is a resounding both!

Even after we knew we would be implementing a payment system, we never stopped obsessing over how to best live in the free space — how to make our stuff circulate, how to give it away. Needless to say, it is a learning experience…and a moving target. It’s hard to imagine a day when this won’t be amongst our top two or three priorities as a company. The open Internet is here to stay, and it will be the axis for most of the marketing and circulation, customer relations — not to mention the place where much of the actual journalistic production will happen.

There may be a few models out there — like the French current affairs site Mediapart — where a pure all-or-nothing offer can work. But right now, at least, it looks like you pass up too many opportunities in the free space when the wall is tall and thick.

Like much bigger players, we have opted for a metered model, which allows you to be both a free and paid site at the same time and to adjust the dial as you see fit. Powered by Tinypass (the same folk bringing Andrew Sullivan across the paid-for threshold), we have just recently launched our version.

Of course, a young startup’s approach to paid content will necessarily be different than both what Sullivan and the large news organizations are doing. They’re all busy calculating how many of their loyal, longtime readers will commit to a subscription. We’re still very much at the beginning of introducing ourselves to the world. Thus the meter can work for us to let people discover our product, and build our subscription base in step with a growth in overall audience. To launch, we have turned our meter on at 15 stories a month. Needless to say, we’ll monitor it closely.

But perhaps more interesting for us in the short term is that a paid system can help support other revenue streams beyond the direct paying individual. It’s useful for us as we begin a B2B business with the New York Times Syndicate. There is also the potential, as demonstrated by the Financial Times, of selling bundled access directly to institutions. Hopefully, the general news sector won’t fall into the same old trap of saying only the economic press can explore these kinds of paid content opportunities!

Walls worked in the past, and they’re showing signs of working now. They used to be fixed and impermeable and even occasionally monopolistic; now they’re retractable and porous — and forced to compete, compete, compete. Not only does The New York Times allow for 10 articles a month, it also can lift the wall when a hurricane strikes. One can imagine The Washington Post already asking itself if they will do something similar for the mid-term elections. (Side note: in these cases, news outlets usually present the temporary lifting of its paywall as a public service. Of course, it’s fundamentally a business decision — both in the immediate traffic surges, and in the long-term loyalty earned by presenting it as a public service. Ours is an industry full of wicked contradictions!)

Just as important as the cash, the walls also help rebuild lasting relationships with the readers who pay to be on the inside. If I’ve paid for something, if I’ve committed to it, I will use it more — and value it more. And that will make me more valuable as a customer. (This is why “subsidy” is also the wrong word for advertising.)

Ultimately, the real long play of paid-content strategies is that they may actually help change people’s news consumption habits. Together with lean-back tablet devices and a more general information fatigue, paywalls might help swing the pendulum back to both fewer clicks and fewer sources in a daily news diet.

Or maybe not! Part will depend on how the information is produced, filtered and distributed; can newspapers transform themselves into news portals? Will the Nate Silver free-agent “hosting” model expand? Will different sources be bundled together, à la cable TV? It will also depend on how the Facebook generation changes or doesn’t change once they have careers, kids, and homes of their own — not to mention what the Facebook/Google/Apples of the world themselves have in store for us.

It may seem like a contradiction, but a news organization must know how to simultaneously do all it can to keep people’s attention locked on its wares, while also being equipped to move in the open Internet’s constant comings and goings. For the kind of startup we are, there’s an extra potential in finding new network effects amongst both big and small outlets: It’s the ecosystem, baby! In the meantime, we’ll do our best each day to keep turning out fresh plates of pasta — and some cannoli too.

Photo by Bradley Stabler used under a Creative Commons license.

June 03 2011

21:10

The NYT rewards its paying users with subscriber-only content

Subscribers to The New York Times got a surprise in their inboxes this afternoon: a story-behind-the-story about the paper’s coverage of the death of Osama bin Laden, penned by the weekend editor who’d been helming the paper’s news coverage when it was announced that the terrorist leader had been killed by American commandos.

The story is the first, the email notes, in an ongoing series of occasional newsletters — created for subscribers, and for subscribers alone, as, ostensibly, a “thank you” for their subscriptions. As the Times puts it (we’ll save you the ALL CAPS):

This Story Behind Behind the Story e-mail newsletter from The New York Times newsroom has been prepared exclusively for Times subscribers and is the first of an ongoing series you’ll receive as part of your subscription.

The Times’ pay models, both of them, have been based on the walling-off (or metering-off, as it were) of existing content; this seems to be a case of the Times creating new content only for its subscribers. And it’s meta-content: a story about how the Times reported a story.

I’ve reached out to the Times to learn more about the mechanics of the newsletter, which seems to be dribbling out to (at least) print subscribers this afternoon. (Some of my questions: Is it being delivered to digital Times subscribers too? How often will the newsletters be sent out? Will the stories contained in the letter — the Osama backgrounder looks oddly formatted for the page and PDF-like — live anywhere on the web or in print, or are they email-only? Will there someday be ads against the newsletters?)

I’ll update this when I hear back. Meantime, though, it’s worth noting that the newsletter is launching against the backdrop of a Times digital subscription model that is still, in the scheme of things, nascent. The pitch the paper has been making since March, after all, has been something along the lines of “we’re worth paying for.” Subscriber-only content, however, suggests an addendum to that: “We’ll make the paying-for worthwhile.” It rewards subscription, obviously — but, in that, it also suggests that subscribers are, somehow, insiders. News organizations often default to that “behind the scenes” approach when considering how to reward devoted readers: Intimacy, after all, can be a good complement to loyalty.

It’s also worth noting why the Times can reward its subscribers via email. One advantage of the paper’s paid-content model — besides, you know, getting your readers to pay for the content they consume — is how it incentivizes subscribers to connect their digital and print accounts. (Print subcriptions get digital access, but only if they connect the two.) The Times can reach its subscribers (and reward them, then, however it sees fit) in some part because the paper has their digital information in the first place. Times Co. CEO Janet Robinson noted last month that 728,000 print subscribers had connected newsprint to website. Users have given the Times their data; the Times has used those data, in turn, to thank them.

In that, the newsletter seems to be a step toward the Times converting its subscriber base into something that looks more like a community. The Times itself has, in the past, considered “membership” as the proper metaphor for a paid-content strategy — remember those rumors of Gold and Silver offerings? While it ultimately opted for a subscription-driven approach rather than a membership-driven one, the special-for-subscribers content tips a hat to the core ideas of media membership. It’s a like a tote bag in story form.

And that’s significant. The conventional wisdom, after all, tends to be that creating community around news content is the first step toward monetizing that content. The Times’ pay meter has so far bucked that assumption, making its pitch mostly about the paper’s value to consumers on an individual level. Today’s inaugural newsletter suggests, though, that the paper is still actively exploring the more communal aspects of paid content — in this case, bolstering its brand by rewarding the people who prove willing to pay to keep it around.

April 21 2011

16:45

A New York Times TimesSelect flashback: Early numbers are nice, but growth over time is nicer

The New York Times Co., as part of its earnings announcement today, gave the first concrete numbers for its new digital subscription offerings, noting that “paid digital subscribers have surpassed 100,000” in the three weeks since global launch. (Canadians had a one-week head start.) The Times itself has reported that the goal for year one of the paywall is 300,000 subscribers.

The general reaction around the web seems to be “Not bad!” (“This is encouraging,” “pretty impressive,” “very encouraging,” and so on.) But the most important question, I think, is one we’re not any closer to answering: not where that number is today, but what the growth curve will look like over time. And the Times’ past experience with charging for content shows that’s a harder nut to crack.

Let’s say that those 100,000 subscribers stick around. (Note that they’re currently paying heavily discounted introductory rates — 99 cents a week instead of the $3.75 minimum they’ll have to pay when their offer runs out.) If we guesstimate an 80/20 split between the cheapest and most expensive pricing packages, that would generate almost $25 million a year in new revenue for the Times. Now, that’s not $25 million in new profit — the paywall costs money to run and market — and it’s still small in the context of a company that generated $566.5 million in revenue just in the last quarter. It’s something, and climbing revenue is better than declining revenue — and of course if that 100,000 number grows, even better.

But let’s go back in time. Check this MarketWatch piece from 2005 from the last time the Times put up a paywall, with TimesSelect:

The chief of the New York Times’ digital operations said he is “delighted with the enthusiastic response” to the company’s subscription package offering access to editorials, opinion pieces and columnists, as well as the paper’s archives. TimesSelect is priced at $49.95 for a year and $7.95 a month.

Martin Nisenholtz, a Times senior vice president, reported that TimesSelect has signed up 270,000 subscribers in the two months it’s been available. Half the number represents home-delivery customers who get the package included with their print subscriptions.

So of the 270,000, half — 135,000 — are digital-only paid subscribers, the closest equivalent of the 100,000 number the Times announced today. That was after two months of TimesSelect.

Comparisons between TimesSelect and the new system are always imperfect. One only affected a small portion of the Times’ content; the other affects nearly all of it, but only for certain users who consume it above certain quantities and through certain channels. One had a flat and relatively low price; the other has a menu of options, all more expensive than last time. And the environment for paid content in 2011 is different from 2005′s in lots of ways.

But both new and old faced the same fundamental question: Will the paywall continue to convert new customers, or will it eventually tap out the supply of existing Times lovers? Flash back to 2007, when TimesSelect was pulled down:

TimesSelect had about 227,000 paying subscribers as of August. People who receive the paper at home get access to it for free, as do students. In total, about 787,400 people have access to TimesSelect now, the company said.

So, from September to November 2005 — in the first two months — the Times signed up 135,000 subscribers to TimesSelect. Then, between then and September 2007 — 22 months — it signed up only another 92,000.

We actually have a few other data points. In January 2006, the number of paying subscribers was 156,000 according to Editor & Publisher. In September 2006, the number was 198,690. This MediaPost article quotes 220,090 in April 2007 and 224,580 in June 2007.

Plot those known numbers on a chart and this is what you get:

Yes, there was an initial rush of digital subscribers. I suspect these were disproportionately the kinds of Times readers that Martin Nisenholtz was referring to in his chat with Peter Kafka last month:

When you look at the research that we’ve done, tons of people actually say, “Jeez, we’ve felt sort of guilty getting this for free all these years. We actually want to step up and pay, because we know we’re supporting a valuable institution.”

These are the people who love the Times and have no problem ponying up a few bucks a month as soon as they’re asked, both because they see the value in the paper and out of a civic-minded spirit. (I’m one of them!) They’re the primary target of the Times’ paywall efforts past and present.

The problem is that there are only so many of them around. And TimesSelect, at least, had a difficult time getting a lot of traction beyond them — with subscriptions increasing by only about 7,000 in the last four months.

Now, there’s no reason the new digital subscriptions have to follow the same course as TimesSelect. The metered model, with its unusual correlation to the calendar month, will mean that many readers will hit the paywall inconsistently, and I wouldn’t be surprised if the subscriber numbers weren’t on as smooth of a time curve as TimesSelect’s were.

But the last time there was a rush of people wanting to pay for nytimes.com, it was followed by a long plateau of slow growth — and eventually, by Times executives deciding that the lost advertising revenue (plus the mistaken public perception that the entire paper was behind a paywall) was too big a price to pay for its strategy. 2011 isn’t 2007, but the only way we’ll learn how this time is different is to wait it out.

March 30 2011

20:00

Canadians are also hostile to paywalls, survey finds

Twelve percent of Canadians are willing to pay for ringtones, but only 4 percent are willing to pay for news.

A survey of almost 1,700 adults by the nonprofit Canadian Media Research Consortium (summary, pdf) finds its hard to get people to pay for any kind of digital content, but that news ranked behind movies, ebooks, music, games, and yes, ringtones in willingness to pay. If their favorite news sites started charging, 92 percent said they would simply find a free alternative — with no significant differences among age groups or education levels.

Southward-focused Canadians got a head start on the paywall experience this month when they were the first to come under The New York Times’ paid-content umbrella. Interestingly, the CMRC study found that — if there were absolutely no free news sources available, something unlikely in the land of the CBC — the type of news Canadians would be most willing to pony up for is breaking news — which the Times has said will often be made available without restrictions to Times readers, even those past their monthly article quota. (What does “breaking news” mean? The survey doesn’t say. I suspect the respondents would have provided about 1,700 definitions.) “Hard,” international, and investigative news were also more likely to be judged payment-worthy, with entertainment news a tougher sell.

Men were more likely than women to pay, and French speakers more likely than English speakers, the survey found. As for how they’d prefer to pay (if they had to), 34 percent of the willing adults would prefer a flat-rate subscription model, with the Times’ metered approach (free until you hit 20 articles a month) in second place. Very few respondents said they would pay per article or per day.

Of course, this is a survey about how people feel, not what they do. The New York Times has not released digital subscription data since putting up the wall. The other Times, The Times of London, on Tuesday released data indicating at least some people are paying, citing 29,000 new digital subscriptions in the last five months — even as higher-priced paper subscriptions continue falling.

“If only consumers were as comfortable paying for content as owners would like them to be, the future would be a lot rosier,” the report concludes. “Paywalls might work for selective publications, such as The Wall Street Journal and the Times of London but given current public attitudes, most publishers had better start looking elsewhere for revenue solutions.”

March 02 2011

00:00

John Gruber on Apple’s 30% cut: To the victor goes the pricing power

John Gruber at Daring Fireball has an extended take on the justice or injustice of Apple’s 30-percent cut of all iPhone/iPad subscriptions. (He comes down on the side of justice. Or at least a kind of it’s-fair-because-we-can justice.) If you, like many publishers, are still cranky about Apple’s decision, give it a read to get a reasoned argument for the other side. (One that’ll probably still leave you cranky — but reasoned nonetheless.)

Here are a few thoughts on some of Gruber’s arguments:

Apple doesn’t give a damn about companies with business models that can’t afford a 70/30 split. Apple’s running a competitive business; competition is cold and hard. And who exactly can’t afford a 70/30 split? Middlemen. It’s not that Apple is opposed to middlemen — it’s that Apple wants to be the middleman. It’s difficult to expect them to be sympathetic to the plights of other middlemen.

To the broad category of “middlemen” I’d add “companies whose economics are built for other platforms.”

For all the developers who’ve built native apps for the iPhone or iPad from scratch — say, game developers or productivity app developers — they’ve been able to build their business strategy from a known cost base and a known revenue scheme. If you know that you’re going to be selling 99-cent apps, you can build a business around the expectation of revenue coming in 99-cent chunks. (Or, more accurately, 70-cent chunks, after Apple’s cut.)

But if you’re a business that already exists, with its own native pre-iOS economic basis, you’re laden with a bunch of preset economic variables. If you’re a newspaper, you’ve already got a newsroom with X number of reporters and Y number of photographers and Z number of editors. (Which were probably around 2X, 2Y, and 2Z ten years ago.) You’re coming to a new platform, but it’s not an entirely new product you’re creating — you were already paying those reporters. And when you’re calculating something like pricing, you’re doing that with an understanding that you’re also navigating the economic space between what you’re already charging for your website (likely $0 now, although you’re planning on changing that later this year) and what you’re already charging for a print subscription (whether that’s $12, $20, or $30 a month). You’re already scared to death about trying to convince people they should pay for your website — and then all of a sudden, the monthly number you’d been planning to charge for your iPhone app needs to go up 30 percent to make the math work.

Now, that’s not Apple’s problem. Gruber’s right: Apple doesn’t give a damn about newspapers. The financial difficulties of American newspapers are not Apple’s fault and they’re not Apple’s to solve. And unlike Google — which has put a lot of energy into making newspaper-friendly noises to try to repair a relationship that bottomed out a couple of years ago — Apple doesn’t throw the industry any bone bigger than showing off nytimes.com in product demos.

But regardless of whether you think newspapers deserve any sympathy for their plight (good arguments on both sides!), it’s not just middlemen who are disadvantaged by Apple’s large take.

Kindle, and e-book platforms in general, are a different case. For one thing, Kindle doesn’t use subscriptions. Kindle offers purchases.

The Kindle does actually offer subscriptions, both to newspapers and blogs, like Daring Fireball itself. (Given where DF ranks in the Kindle Store, he probably has about 5-8 people paying $1.99 a month to read the site on their Kindles. We have 16! That’s likely to be the only traffic-related number where we edge Gruber.)

I don’t think any publisher would consider Amazon’s Kindle subscription model an improvement over Apple’s, though, for a host of reasons — not least that it’s Amazon who controls pricing, not the publisher, not to mention Amazon takes an even steeper cut than Apple does.

Second, the problem facing traditional publishers today is that circulation is falling. Newsstand sales and subscriptions are falling, under pressure from free-of-charge websites and other forms of digital content. The idea with Apple’s 70-30 revenue split is that developers and publishers can make it up in volume — that people aren’t just somewhat more willing to pay for content through iTunes than other online content stores, they are far more willing. The idea is that that Apple has cracked a nut no one else has — they’ve created an ecosystem where hundreds of millions of people are willing to pay for digital content. Thus, potentially, publishers won’t just make more money keeping only 70 percent of subscription fees generated through iOS apps than they are now with 96 percent (or whatever they’re left with after payment processing fees) of subscription fees they’re selling on their own — they stand to make a lot more money.

There’s no doubt that Apple’s built a great payment system. Although I’d also point out that it benefits from the natural market segmentation that comes whenever you sell expensive devices. Does the iPad make people more likely to buy digital goods? Or does the fact that someone has paid $499 or $829 for an iPad serve as a pretty good marker that they’re already the kind of person more likely to pay for digital goods? I think there’s truth in both.

To look at it from another angle, any developer will tell you that there are many more Mac users who buy shareware apps than Windows users. (I’m speaking in terms of percentage; obviously there are many more Windows users than Mac users. But a larger percentage of Mac users will download and pay for a $15 app than will Windows users.) Now, pre-Mac App Store, Apple didn’t make paying for software any easier than Microsoft did. But Mac users are, by their self-selected nature, people who were willing to spend a little more to get a better computing experience — in other words, people who are predisposed toward paying.

The other factor here is the idea of who “deserves” credit for bringing a customer to a purchase. As Apple said in its announcement, “when Apple brings a new subscriber to the app, Apple earns a 30 percent share.” And if someone discovers Tiny Wings (great game!) in the App Store rankings and downloads it, I think Apple’s certainly earned its 30 percent.

But if someone searches for and downloads The New York Times app — after the Times has spent more than a century building up its brand, as the cost of billions of dollars — can it really be said that Apple has “brought” that subscriber to the app, and that they deserve 30 percent of the revenue the app generates, forever? (Gruber doesn’t address the eternal nature of Apple’s cut; it’s like paying a New York apartment broker his finder’s fee, every year for the rest of your Manhattan-dwelling life.) It certainly seems like a transaction different in kind from, say, a game that exists only on (and only because) the iPhone platform.

Again, it’s a case of being disadvantaged if you’re bringing over an economic model from outside the platform. There’s a reason Rupert Murdoch said he was fine giving Apple 30 percent of the revenues from The Daily — but why he’s no doubt less thrilled about having to give over 30 percent of the revenue generated by The Wall Street Journal’s app. The Daily’s economics are built around getting 70 cents a subscriber each week. The Wall Street Journal has a host of price points in other media it needs to fit an iPad price into. (Not to mention an annual cost 4x The Daily’s.)

Finally, also note that most App Store developers don’t have such a readily substitutable good available for free over in Safari, the web browser. If you don’t want to pay 99 cents for Angry Birds, you don’t have the option of going to Safari and playing it for free. Again, you can blame newspapers for that state of affairs, and you wouldn’t be wrong. But given the degree to which newspapers are having to balance free and paid in a variety of ways to make digital revenue work, it’s a tough moment to be pushed into a corner by Apple’s decision.

This is what galls some: Apple is doing this because they can, and no other company is in a position to do it. This is not a fear that in-app subscriptions will fail because Apple’s 30 percent slice is too high, but rather that in-app subscriptions will succeed despite Apple’s (in their minds) egregious profiteering. I.e. that charging what the market will bear is somehow unscrupulous. To the charge that Apple Inc. is a for-profit corporation run by staunch capitalists, I say, “Duh”.

Of course. Apple’s not a charity. It has no financial reason to help out any content industry. While those of us who wish the newspaper business well would love to see a different approach, in the end, it’s Apple’s choice and they can do what they please.

And iOS subscriptions won’t fail. I wager that most of the news publishers grumbling about the issue now will come around and give the cut to Apple. They might increase their investment in Android phone and tablet apps a little, but let’s be honest: Apple’s still the big dog here. (Android users have inherited Windows users’ disinterest in paying for software or digital content.)

It’s just galling that the incumbent players in the news business face so many economic disadvantages because of their background, and because of their investment in journalism, that it would have been nice for this to be different.

Yes, the financially sound thing for them to do would be to abandon the old cost structure and instead build a digital-native company that could happily turn over 30 percent of revenues to Apple and reap all the benefits (distribution, scale, payment platform) that Apple provides.

The only problem with that, with that model, you end up, well, with something like The Daily — something light and tabloidy, something in nugget form, something that looks for the oldest dog in America. (Actually, I suspect you end up with less than that, because I’m not optimistic that Murdoch will get the subscriber numbers he needs to be profitable. And I say that despite being a great admirer of many of the people working there.)

With all the great innovation that’s gone on in the news space, there are still no for-profit newsrooms with the scale and heft and journalistic weaponry of the nation’s biggest newspapers. They’re still important, and they’ve been looking to the app economy as a big part of their efforts to figure out a place in the digital economy. It would have been nice if Apple might have cut them some slack. Yeah, that’s not Steve Jobs’ problem — I get that. Apple’s earned their pricing power by being innovative and smart. But it still would have been nice.

February 16 2011

16:15

Take that, Cupertino! Google undercuts Apple’s subscription plan with a cheaper one of its own

Back in 2009, we broke word that Google was working on an e-payment solution for publishers that would be based on its Google Checkout platform. Google’s proposal (pdf) to the Newspaper Association of America said that the company’s “vision of a premium content ecosystem includes”:

• Single sign-on capability for users to access content and manage subscriptions

• Ability for publishers to combine subscriptions from different titles together for one price

• Ability for publishers to create multiple payment options and easily include/exclude content behind a paywall

• Multiple tiers of access to search including 1) snippets only with “subscription” label, 2) access to preview pages and 3) “first click free” access

• Advertising systems that offer highly relevant ads for users, such as interest-based advertising

Google’s got plenty of targeted advertising options (#5), and First Click Free is old hat by now (#4). But Google took a big step toward fulfilling the rest of that vision (#1, #2, and #3) today with the announcement of Google One Pass, “a payment system that enables publishers to charge consumers for articles and other content.” And coming on the heels of Apple’s less-than-publisher-friendly subscription announcement yesterday, Google’s alternative may seem like a breath of fresh air.

First, Google is selling flexibility. No requirement to offer the same deal through a Google One Pass payment system as through other means — which means bundling with print subscriptions is a whole lot simpler than with Apple. Print customers can enter a coupon code to get free access to a website. Want to try a metered model, or experiment with putting more, less, or different content behind a paywall? No problem. It’s device-agnostic — so if you want to sell an all-access, all-platform subscription, no problem there either. (It’s also a micropayment platform, for the few still living who believe in per-article micropayments as a viable model.)

Second, as Lee Shirani writes in the announcing blog post: “With Google One Pass, publishers can maintain direct relationships with their customers and give readers access to digital content across websites and mobile apps.” That sentence isn’t detailed any further in the initial announcement or docs online, but it sure sounds like a nice way of saying, “We’ll let you keep all the customer data Apple isn’t letting you have.”

And, most key of all, Google isn’t demanding the 30 percent cut Apple does. The announcement doesn’t share cost details, but the FT is reporting Google will take 10 percent of any subscription revenue. So selling a $15/month subscription via Apple would net $10.50 versus $13.50 via Google.

The announcement’s a lot to digest, but three quick thoughts:

— With the timing, it’s easy to see One Pass primarily as a competitor to Apple’s subscription plans. But note that the focus is primarily on web access, not app access. (Note that the word “Android” — Google’s mobile platform — is mentioned nowhere.) While mobile apps get a shoutout in the announcement, Google notes that it’ll work only “in instances where the mobile OS terms permit transactions to take place outside of the app market,” which likely means it’ll only work in Android apps, which are still a secondary priority for most news orgs, for better or worse, and where getting users to pay anything for apps has been a challenge. At least for the moment, One Pass is more of a direct competitor to Journalism Online’s Press+ than it is to Apple. It’s an infrastructure play.

— Frankly, I’m a little surprised Google’s even taking 10 percent. The transaction costs themselves shouldn’t be any higher than what Google Checkout regularly charges, which is 2.9 percent plus 30 cents a transaction (plus volume discounts). Sure, building and maintaining the record-keeping system for subscribers and the tools for distinguishing free/paid content will cost something. But Google’s consistent model has been to undercut paid competitors by making good free offerings, and I’d have thought just keeping the Checkout fees would have been the play, to soak up as much of the market as possible.

— What Apple is selling publishers is not just an easy payment system — they’re selling the 160 million user accounts with active credit cards attached. That’s about 70 million more than PayPal. How many of you have a credit card on file with Google Checkout, which has struggled to gain relevance and market share?

February 15 2011

16:00

What Apple’s new subscription policy means for news: new rules, new incentives, new complaints

Apple has announced its long-awaited subscription policy for newspapers, magazines, and other outlets who want to sell content for the iPhone, iPad, and iPod touch. The high points:

— Publishers who sell subscriptions to content on Apple devices must make that subscription available for purchase within their apps — a path that promises easy, one-click purchases for users but that also gives Apple a 30 percent cut of the payment.

— Publishers can still sell access to subscriptions outside the app — say, by taking a credit-card payment on their website. But the cost can be no lower than the price offered inside the app, and publishers are responsible for setting up their own authentication system for those subscribers.

— Customer data for in-app subscribers will remain with Apple, generally speaking, but customers will have the option to send their name, email address, and zip code to publishers. (Opt-in, not opt-out.) If handed over, that data will be governed by the publisher’s privacy policy, not Apple’s.

At first glance, this is exactly what a lot of publishers were fearing: Apple setting itself up as a toll-taker on news orgs’ road to a new business model. (Excuse the metaphor.) For publishers who had been counting on a new rush of tablet revenue to support a lagging print model, it’s disappointing to learn that, in exchange for the convenience of a “Buy” button in their iPad app, they’ll have to give up 30 percent of the revenue it generates. We’ll have to see how it plays out in the coming months, but first, here are four quick reactions to what the latest word from Cupertino means for news outlets.

Converting print-to-tablet rather than tablet-native

As Steve Jobs says in the press release: “Our philosophy is simple — when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.” (We could debate what “brings” means all day.)

That means news organizations will be incentivized to convert customers they already have relationships with — a.k.a. print subscribers — into tablet-only or tablet-also readers. If you’re a newspaper and you can convince your 20-year subscriber to pay a little extra for a tablet subscription, you get to keep that marginal revenue because you “brought” that subscriber to the app and processed her billing outside Apple’s systems.

In the long run, though, such a strategy could hurt newspapers who already have disproportionately older audiences. Converting 20-year subscribers to a new platform isn’t as valuable as converting non-readers into tablet readers. Part of the appeal of tablets and smartphones is that they promise to put newspapers in front of a younger audience that, frankly, hasn’t picked up a print paper in years, or ever. For those people — people who download an app, like what they see, and decide to subscribe — Apple will take its cut. It’s a perverse incentive for publishers.

The big question here is what this policy will mean for bundling. Lots of publishers are selling bundled packages — pay one price and get print, web, iPhone, iPad, and whatever-else access. Apple’s press release is unclear on how those would be handled. Lots of publishers get away with “charging” an extra penny for access to an e-edition no one uses. Will they be able to get away with bundling tablet access with print outside an app? Or will they have to funnel their print revenues through Apple too if they want to sell as a package? Giving up 30 percent of tablet revenue is one thing; giving up 30 percent of print subscription revenue is suicide.

A missed opportunity to create a new pricing tier

It’s been rumored that the next iPhone, due this summer, would include near field communications, or NFC, capability. That’s similar to the technology that lets you tap your credit card instead of swiping it at some stores, and it could, in effect, turn your Apple device into something like a credit/debit card that lets you pay for physical items in physical locations, not just a Mighty Eagle in Angry Birds.

If that’s in the iPhone’s future, it’s clear Apple would need to create a different pricing tier for buying via NFC. Taking a 30 percent cut isn’t tenable if you’re buying a laptop or a week’s worth of groceries. Store owners will need to be convinced to embrace NFC payments, and they’ll only do so if they can do so at a cost that’s competitive (for them) with credit and debit cards. So the assumption’s been that Apple would, in a few months, debut a separate tier of pricing for Apple’s share of those purchases.

And it makes sense that, as Apple’s universe grows, a one-size-fits-all pricing model isn’t going to work. What made (grudging) sense to iPhone developers three years ago isn’t going to make sense in every other market. Selling subscriptions to content — content generally produced at substantial cost in a non-digital context, in the case of most newspapers and magazines — would seem to be a logical place to offer a smaller cut in an attempt get as many news orgs headed to iPads as possible. But that’s not what Apple’s chosen.

An opening for competitors?

The iPad dominates the tablet market, and most of the new competitors announced in the past few months appear to be overpriced to compete with the first iPad, let alone the second one expected in a few weeks. (Not to mention that most of them haven’t even shipped yet.)

But the vast majority of the world still lacks a tablet, of course, and there’s still a lot of selling to be done. It will be interesting to see whether Apple’s competitors will see an opportunity to get news outlets — which still have major marketing power — to shift their favor in some other tablet’s direction. RIM and HP both have proprietary operating systems on their tablets that could offer better deals in stores; the Android world remains something of a free-for-all, with rival stores for apps and what seems to be a real difficulty getting anyone to pay for anything. But if a rival OS could pitch a great deal to news orgs, the field is still fresh enough that some of them might be willing to promote the hell out of it as their preferred tablet choice. For a market where Apple takes up a lot of the oxygen, that promise of a promotion platform could be appealing.

No mention of restrictions on browser access

One thing absent from today’s announcement: any requirement that a news org selling subscriptions to an iPad app disable or charge for access to its website on iPads. Our own Ken Doctor predicted that would be part of the new Apple model, intending to funnel all tablet users through the app rather than relying on a still-free alternative a few taps away in Safari.

I think not going there is smart — too many news organizations are still betting on a mixture of free and paid for their digital strategy to tie web and app access together so closely. If we lived in a world where everyone was committed to Times (UK)-style paywalls, it might make sense. But there’s still a lot of nuance to be figured out on where to charge and where to give away, and any rule from Apple governing such a big part of the mobile web would stifle the experimentation I hope we’re finally going to see in 2011.

Finally, that’s one other question left unanswered by Apple’s release: How much leeway will publishers have to balance free and paid within an app. Outside the news world, app developers have complained that Apple doesn’t allow free trials for apps — you can’t download an app, try it out for seven days, then decide whether or not to pay. Developers complain that makes it harder to sell expensive apps, which people will rightfully want to try out before spending $50.

How will that idea carry over to publishers? Will someone be able to download an app and get the first three issues of a magazine free before getting pitched on a subscription? Will someone trying a metered model, like The New York Times, be able to let someone read 10 articles a month before hitting the paywall? The in-app purchasing model Apple’s using for subscription would seem to allow some leeway, but we’ll have to see how it works in the real world.

December 15 2010

19:00

Dave Winer: There’s no good place for a new Maginot Line for the news

Editor’s Note: We’re wrapping up 2010 by asking some of the smartest people in journalism what the new year will bring.

Today, it’s web pioneer Dave Winer, a man key to the evolution of many of the publishing technologies we use online today, currently a visiting scholar in journalism at NYU, and half the team behind the Rebooting the News podcast.

When people in the news business try to figure out how to make news pay after the Internet, it seems analogous to the French, after being invaded by Germany in World War II, trying to figure out where to put the new Maginot Line.

The Maginot Line would have been a perfect defense in World War I. It didn’t help much in the second war.

Analogously, there was a perfect paywall in the pre-Internet news business, the physical product of a newspaper. There is no equivalent in the new distribution system.

Howard Weaver’s latest post put this into focus for me. That, and the recent attention on Groupon, which it seems to me has usurped, again, one of the big roles that local news organizations could have played, obviating the need to find the new paywall.

It isn’t really a question if you’ve created something worth paying for. It might be very good, and expensive to create. What matters is if there’s a market for it.

The people in the business of creating fixed fortresses might have asked the same question after WWII. We could make a much better Maginot Line now, we know so much more and technology is so much more advanced. Wouldn’t matter, because France wasn’t in the market for a new Maginot Line.

That’s the question news people never seem to ask. How can we create something that has a market? If they asked that question instead, they would restructure their activity. Because there are things similar to news that have generated huge wealth. Not hidden, in plain sight.

The first usurpage was of course Craigslist. It wasn’t so obvious then that this was the natural domain of the press, because Craigslist made a small fraction of the money the news industry used to make from classifieds. It looked like CL was just undermining the press, not competing with it. But Groupon — this is the fastest-growing company of all time. The founder says what they do is find ways for people to get out and enjoy their city. And they make a boatload of money doing it.

Here’s one way of looking at what both Groupon and local news organizations do — they put smart hard-working people into the field to keep tabs on what people in the community are doing. Some of what they are doing is robbing and killing each other — that’s what news is interested in. Another part of what they’re doing is buying from and selling to each other. Groupon is making huge bucks on that.

It seems there’s still time for a philosophy change in the news business. Become more focused on the commerce of your communities, and the opportunities to make money will become more apparent. Seems like common sense to me.

December 13 2010

20:00

Steven Brill: 2011 will bring ebook battles, paywall successes, and a new model for long-form articles

Editor’s Note: We’re wrapping up 2010 by asking some of the smartest people in journalism what the new year will bring.

Here, Journalism Online cofounder and long-time journalism entrepreneur Steven Brill lays out three predictions for 2011.

1. E-books will continue to soar — and authors will get into major fights with publishers over who gets what percentage of the take, with more top authors withholding their e-book rights and selling them independently or through specialty distributors.

2. Someone — via Press+, I hope — will go into the business of commissioning long-form magazine articles from top writers and providing the first two or three paragraphs online for free and then selling the rest for, say, 75 cents or a dollar. That trailblazing publisher might call these “mini-e-books” and use a business model of simply splitting the revenues with the author, 50-50. My favorite candidates would be website publishers who already have great brand names, such as the Huffington Post or Daily Beast, but that want to revive long-form journalism and make money doing it (and limit risk by making some top writers their 50-50 business partners, rather than pay high flat fees for their work.)

3. As it becomes clear (as it already is to our Press+ affiliates, and as will also be made clear when The New York Times, too, launches its metered model approach) that the sky doesn’t fall in on newspaper and magazine websites who try the freemium model, more newspapers and magazines (and online only sites, too) will begin charging their most frequently-visiting customers for their content online.

Unlike old-fashioned pay walls, the metered model means publishers keep all their online ad revenue and almost all of their monthly unique visitors. (Our affiliates have not lost a nickel of ad revenue.) By next year I bet a big chunk of publishers are doing it and most of the rest are planning it.

Progress will be slow but steady; they’ll gradually climb some of the way back to their old margins. More important, they’ll be preserving their franchises as the trusted-brand provider of news and information in their community — whether that community is the world of sophisticated news consumers who read the Times or those in a small town in Pennsylvania or the UK who read the local paper for news about the school board. Only now they’ll gradually be moving out of the business of paying printers and truck drivers to facilitate that. Their customers will be customers for their content, no matter how it is delivered. That in turn will enable daily papers, for example, gradually to stop printing daily, cutting back on the week’s slowest ad days or even ultimately cutting back just to Sunday or to no print version at all.

All of the above will be facilitated by the onslaught of tablets, such as the iPad, which make reading the same kind of intoxicating sit-back experience that have made books, newspapers and magazines so irresistible. But we’ll also see that the real value of devices like the iPad for reading newspapers and magazines is not as much about the apps that get built for them as it is about how web browser versions are so well presented on them — which means that publishers will want to charge for their web versions if they are going to charge for an app version.

17:00

The great paywall debate: Will The New York Times’ new model work?

Editor’s Note: We’re wrapping up 2010 by asking some of the smartest people in journalism what the new year will bring.

Many of their predictions centered on what may be the most anticipated business-model shift of 2011: The New York Times’ shift to charging for full access to NYTimes.com next month. We found voices on both sides of the “will it work” debate. Here are Steve Brill, Markos Moulitsas, Megan McCarthy, C.W. Anderson, Paddy Hirsch, Jason Fry, Nikki Usher, and Barry Sussman on how they see the metered model shaking out.

Prediction for 2011: The building up — and subsequent tearing down — of online paywalls for general news sites. The New York Times are planning implement their paywall in January and I predict it will be modified enough — either by the Times themselves or outside developers — to be rendered irrelevant by March.

As it becomes clear (as it already is to our Press+ affiliates, and as will also be made clear when The New York Times, too, launches its metered model approach) that the sky doesn’t fall in on newspaper and magazine websites who try the freemium model, more newspapers and magazines (and online only sites, too) will begin charging their most frequently-visiting customers for their content online.

Unlike old-fashioned pay walls, the metered model means publishers keep all their online ad revenue and almost all of their monthly unique visitors. (Our affiliates have not lost a nickel of ad revenue.) By next year I bet a big chunk of publishers are doing it and most of the rest are planning it.

Progress will be slow but steady; they’ll gradually climb some of the way back to their old margins. More important, they’ll be preserving their franchises as the trusted-brand provider of news and information in their community — whether that community is the world of sophisticated news consumers who read the Times or those in a small town in Pennsylvania or the UK who read the local paper for news about the school board. Only now they’ll gradually be moving out of the business of paying printers and truck drivers to facilitate that. Their customers will be customers for their content, no matter how it is delivered. That in turn will enable daily papers, for example, gradually to stop printing daily, cutting back on the week’s slowest ad days or even ultimately cutting back just to Sunday or to no print version at all.

C.W. Anderson, assistant professor of media culture, CUNY

Faced with a massive migration of regular readers to the Guardian and the BBC, The New York Times will abandon its recently enacted paywall.

Now, since The New York Times “porous” paywall won’t even go into effect until early 2011, it’s possible the so-called “wall” will still be active as 2011 draws to a close. But the decision to ditch it will have already been made internally. The wall won’t affect many readers, but it will impact the obsessive news junkies, the people who want to trawl every WikiLeaks cable and parse every detail about the inner workings of the U.S. State Department. Where will these folks go? Will they pay up? Of course not — they’ll simply click over to the Guardian and the BBC, two websites that fit nicely into the demographic niche currently occupied by the Times. Links to the Times will dry up (despite the paywall’s porousness). The egos at 620 Eighth Avenue wont be able to handle the shift in the center of the news conversation across the ocean, and there will be more and more exemptions made to the types of online content that counts towards the meter. Columns will be first to go. The paywall won’t ever make or lose much money, but the real impact will be cultural and organizational — suddenly the Times won’t be the most important news institution in the minds of the American public. Finally, the whole thing will be quietly shelved.

Secondary prediction: The paywall won’t ever be launched, and the leaders of New York Times Co. will admit it was all hatched out in a moment of online madness that swept the industry in late 2009.

The New York Times’ switch to some sort of online pay-to-read system will be a financial success right off the bat — even a windfall for the Times.

Paddy Hirsch, senior editor, public radio’s Marketplace

While news outlets that are hewing to the pay-to-read model will persist in charging readers, the trend will continue to move against them. More and more content will be offered for “free” to consumers as distribution platforms continue to proliferate. Inevitably, this will erode the pay-model outlets’ readerships, and we’ll eventually start to see capitulation by all except the most “niche” journalism organizations, such as trade magazines.

Paywalls will succeed — to a point. The Times and other papers will have success with payment plans that hew to the metered model practiced by the Financial Times, Journalism Online [which owns Press+], and others. But this success will be limited: It will be effective in getting papers’ most loyal customers to pay, but that percentage of customers will be so small that such efforts will be largely seen as failures. We’ll still be talking about analog dollars and digital dimes and bemoaning the lack of a silver bullet. The subscription debate will have moved away from absolutist dogma to a more nuanced view, which will be good, but the level of frustration will remain high and contribute to a lot of noise in conversations.

Markos Moulitsas, founder and publisher, Daily Kos

The NY Times effort to implement a paywall won’t survive the end of the year.

The NYT paywall (with a few bumps and starts) may be the dawn of a new era for national news organizations, but it may be impossible to generalize to other, smaller, and more local news organizations. [Usher does some of her research on the Times, but notes that she has no insider knowledge on this one. —Ed.]

November 22 2010

19:00

How much can we trust e-edition numbers? Depends on the paper

The latest numbers from the Audit Bureau of Circulations, tracking from March 2009 to September 2010, show a major proliferation in the number of e-editions reported by newspapers. Nearly 450 papers currently have weekday e-editions, which tallies to over 2 million subscribers and a 47-percent increase since this time last year.

As print circulation falls, e-editions swell in numbers. Not so startling. But the data can be misleading: Ballooning e-edition numbers don’t necessarily point to wholesale reader rejection of print, or even widespread usage of e-editions. For some local newspapers, if you want a print subscription, newspapers make it very financially agreeable — and in some cases give you no choice — to throw on an e-edition subscription as well.

Look no further than some of the smaller-market papers that cracked paidContent’s top-25 chart of newspaper e-edition subscriptions. Like, say, number 18, The Bend Bulletin, which grew from 1,108 e-edition subscriptions to 24,611 between Sept. 2009 and Sept. 2010. That’s an increase of over 2,000 percent (!) for a company that doesn’t circulate more than 35,000 weekday papers. But local Bulletin readers don’t even have the option of a print-only subscription, according to the paper’s website: It’s an e-edition or bust.

Or take number 25, The Schenectady Gazette. After launching a free site three years ago, the paper put up a paywall 18 months later and began offering a weekly print-plus-e-edition subscription package for one penny more per day than the print-only option — $3.99 versus $4.00 a week. You’d be hard pressed to find a better way to spend 52 cents a year.

Around the time the Gazette changed its subscription offering, weekly paid print circulation sat at 45,421. By September 2010, that number jumped by 16,052, nearly 35 percent. In roughly that same period, Gazette e-edition circulation increased by 17,796. The paper’s e-edition actually generates ad revenue by proving to potential advertisers that readers are local, Gazette general manager Dan Beck told me. “We have created, in an odd way, a more valuable reader to our advertisers,” Beck said. “We know they are our readers and they are local, they’re from here.”

“My overall sense is that this is more about marketing and new, more favorable metrics for newspaper companies than any kind of dramatic change in reading habits,” says Newsonomics author and Lab contributor Ken Doctor. Indeed, it’s difficult to tell whether e-edition subscriptions equate in any way to usage. Doctor cites “the snowbird reader of a northern paper” as one possible explanation.

The traditional e-edition essentially replicates the print product in digital format; ABC numbers cover these replicas, plus non-replica e-editions, like The Wall Street Journal and the soon-to-be-paywalled New York Times. ABC tracking includes online-only and Kindle subscriptions, which exist on a different account than print subscriptions, and products like TimesReader or GlobeReader as well.

All but two of the top 25 saw percentage increases in that September-to-September period, a phenomenon Doctor partly attributes to the slew of subscription bundles that surfaced over past year. He suggests the conventional e-edition isn’t attractive enough to compete with tablet versions as they continue to improve: “It’s a small, niche product, useful to those who like the newspaper in the format of the print paper. As tablets offer greater choice as digital news reading devices, e-editions will probably wither.”

We’ll see in March 2011, when ABC begins itemizing its e-edition circulation report by weekly subscription versus single-issue purchases, university subscriptions, and mobile readership.

November 15 2010

17:00

Comments and free samples: How the Honolulu Civil Beat is trying to build an audience (and its name)

“You’re starting from absolute scratch. That’s a big hill to climb.”

That’s not an excuse, but it is the reality of the news startup that John Temple is describing. Temple is the editor of the Honolulu Civil Beat, the online-only news source that made a big splash earlier this year because of its pay-first mentality. As envisioned by Temple, and by Civil Beat founders Pierre Omidyar and Randy Ching, most of the content on the Civil Beat site sits behind a paywall.

As far as startups go, the Civil Beat had news futurists curious about whether a media organization could get readers to pay for news upfront — particularly since Civil Beat has the advantage/disadvantage of starting from a paid subscription model out of the box, as opposed to introducing one after the fact. The big question — it almost seems like a sphinxian riddle — is how do you get people to pay for your work if they can’t readily access it?

In the first six months, the answer seems to be a lot of hustle on the part of Temple and his staff. They’ve aggressively pursued coverage on land use and money issues, placed an emphasis on data, and are engaging readers on and offline. And one other thing: They’re giving away free samples on CivilBeat.com.

“When you’re working at an established organization, you’re building on so much tradition. And here you’re not. You’re developing everything,” said Temple, who is more than familiar with established organizations having been editor and publisher of the departed Rocky Mountain News.

Doling out free content

Where Civil Beat has to be creative, Temple told me, is in making a connection to readers and turning them into site members. “The challenge of course is to have enough people feel that you’re essential that they want to support you and pay for your services,” he said. (Temple said they aren’t releasing numbers on Civil Beat memberships or site traffic just yet. Though he did say this: “People who are willing to sign up at the early phase of a new news product like this with high aspirations — there’s low churn rate with those people.”)

The paywall also sprouts leaks on certain days, when some Civil Beat stories are viewable to the public — generally reporting on the government or elections, Temple said. The Civil Beat homepage, as well as its Twitter feed, also provide a basic understanding of the day’s news in a less-than-closed off way. Temple said it’s been important, as a matter of marketing as well as gaining the public’s trust, to demonstrate to readers that their news is not completely hidden away.

Which is why they went one step further, offering the equivalent of “free ice cream sundaes!” with complete free access to the site on certain days. The free content days are timed around stories the staff believe are in the public interest or enterprise stories they’d like to see reach a wider audience. Temple said they recognize that in order for readers to decide whether they want to spend money on the Civil Beat, they should be able to sample it first.

What the Civil Beat shares in common with many news organizations is the belief in the strength of their journalism as the primary draw for the public, be it land development and environmental stories or campaign funding news. It’s a mix of news basics in new forms, with the Civil Beat reporter/hosts fact-checking (similar to PolitiFact) statements from politicians and parsing data for document-driven reports on subjects like public employee salaries.

“We share with the readership the experience in gathering those records and encountering government agencies,” Temple said. “In some ways that has been very provocative, because we’ve written about how difficult it is to get information and how government agencies treat us.”

Building community

As a small news organization willing to experiment with coverage areas, reader engagement, and ways readers can pay for content, Temple said it was necessary to have an open dialogue with members about changes to the Civil Beat. The company blog has become a place to discuss their journalism and ask for suggested interview questions. Temple said it’s also been useful as they’ve also tinkered with the subscription levels and pricing, offering a 15-day trial for $0.99 and adding a $0.99 cent per month discussion membership to take part in comments. (Comments are free to view, just not to leave.)

And speaking of comments, Temple says they have nothing but good things to report. Discussions have largely remained civil, even while spirited. Members use their real names or can use a screen name (though Civil Beat staff know members’ real identities, thanks to the subscription process). And what may be most surprising to editors dealing with comments elsewhere: “We don’t even have a profanity filter on our comments — anybody can post anything in our comments. It’s all self regulated,” Temple said.

The Civil Beat seems to be making its biggest bet on reader engagement, not just as a method of outreach, but also as content for the site. The debates between readers, ranging from education reform to a proposed Honolulu rail project are filled with long, thoughtful posts, often citing links for background. In turn, Civil Beat staff will invite members to write blog posts spun off from discussions or on other topical issues. “Obviously, the core content is the journalism that we produce, but the comments and the discussion create a whole other level of content,” Temple said.

They’re also reverse engineering the idea of comments as the new “public square,” by holding events (called “Beatups”) on issues like the judicial nomination process and the merger of the Honolulu Advertiser and Honolulu Star-Bulletin. The events are open to members, with non-members able to join for as little as the $0.99 commenting subscription.

Temple wants to not just inspire the daily conversation, but be a part of it — and yes, to get people to help pay for their work along the way. By making select stories open and comments visible, the strategy appears to be letting outsiders have just enough of a taste (or get them riled up for a debate) to pique their curiosity. The idea for the Civil Beat is to prove its worth as a news organization through their work while being open with readers about how they operate. And with substantial financial backing, it can afford to give its strategy some time to develop.

“If you look at most news organizations, and of course they’ve all evolved over the years, there’s still a pretty defensive posture,” Temple said. “We don’t think that’s a healthy way to approach it and I think our members have responded really positively to that. They want to feel that they can talk to you.”

October 06 2010

16:00

When people are willing to pay for “almost nothing”: The economic and emotional logic of web paywalls

Marco Arment is the developer behind Instapaper, the devilishly useful time-shifting tool for reading. Just as a DVR allows you to watch Mad Men when it’s convenient for you — say, at 6:45 p.m. Thursday instead of 10 p.m. Eastern on Sunday — Instapaper lets you read long-form prose when you’ve got the time and attention to devote to it. Come across a long interesting magazine piece in your daily web travels, but don’t have time to read it just then? Click Instapaper’s “Read Later” bookmarklet and it’ll be pulled into your iPhone (or Kindle or whatever) for offline reading when you’re on a plane or train. I love it.

But rather than just praise a terrific app, I want to point out a couple tweets of Marco’s that might tell us a little something about the paywalls we’ll see news organizations start erecting in greater quantities soon. Arment recently decided to start offering a paid model for Instapaper’s web service. He calls it an Instapaper Subscription, and it’s $3 for three months. What do you get for your $3? Arment is blunt:

Right now? Almost nothing, except knowing that you are supporting the Instapaper service’s operation and future feature development…

Some future features may be Subscriber-only, but please don’t buy a Subscription solely because you expect these exclusive features to be mind-blowing. They might be, depending on how easily your mind is blown, but I’d feel better if you bought the Subscription because you wanted to support Instapaper.

Now that’s a soft sell — pay me three bucks and I’ll give you roughly zero in return! But reaction to the move around the web has been overwhelmingly positive, as this tweet indicates:

I'm often surprised at how new things are received. Me: I now will accept money for almost nothing. Internet: Sounds great! Here you go!

He contrasts that with the often vociferous reaction some have to iPhone app developers who dare to charge a couple bucks for their work, rather than the expected price of $0:

Meanwhile.... iOS developers: Here is 6 months of work for $1.99. App Store reviewers: Lame, FAIL, should be $0.99, too expensive, useless!

An app is not a breaking story, and software is not journalism — but I think there’s some wisdom for news organizations here.

The economic value of your work is determined by the market, not wishes and hopes. Is it fair, in a cosmic sense, that people are willing to pay $3 for three months of “almost nothing” when it comes to Instapaper, but not pay $2 for an iPhone app that took an enormous amount of hard work? No! But prices aren’t set by principles of fairness: They’re set by the market. These are economic decisions, not emotional ones.

Is it fair that I’ll pay $20 a month for an email newsletter about book publishing, which is produced by a handful of people, but wouldn’t pay $20 a month for online access to The Boston Globe, which is the collective work of hundreds of talented journalists? No! But fairness doesn’t much enter into it. I’ve heard lots of journalists use words like “deserve” and “earned” when they describe why they want the paywalls to go up around their work. But the goal is to maximize the economic return on journalists’ work, not to act out of anger.

Requiring payment isn’t always fruitful than encouraging it. Imagine for a moment that instead of asking for subscriptions, Arment had put up an iron-clad, Times-UK-style paywall — pay $1 a month or else no more Instapaper for you. In that case, there’d probably be some users who’d pay up who wouldn’t with Arment’s soft sell.

But Instapaper has a classic competitive substitute good: a very similar service called Read It Later. Is Read It Later as good as Instapaper? I don’t think so — but it’s plenty good enough for the vast majority of people. A hard Instapaper paywall might raise revenue, but at the cost of driving away a huge chunk of customers off whom money might be made some other way — through advertising, say, or by being converted later to paying customers, or simply by promoting the app to their friends.

Most news is the very definition of a substitutable good. If CNN.com put up a paywall, MSNBC.com would be there waiting to collect the free traffic. Ditto The Washington Post and The New York Times. Most online news consumers aren’t looking for specific stories; they’re looking for something to occupy their time for a few minutes that makes them feel better informed. There will always be lots of free alternatives that can fill those duties. That’s why, while I’m happy to see news organizations experimenting with pay models, I’ve also been happy to see them setting reasonable expectations for the outcome and thinking a lot about how to maximize both revenue and audience.

Love and affection drives money. Why are people giving Marco Arment money for nothing? Because they love it. Check out these tweets:

In the online world of free, people need a damned good reason to fork over their money. It had better solve a problem, bring consistent delight, or otherwise earn devotion. A small but devoted audience can be worth more than a big, uncommitted one. How many people love their local newspaper?

July 06 2010

22:54

Time Magazine putting up a paywall to protect print?

Check out the current issue of Time Magazine at Time.com. Click around. Notice anything? On almost every story that comes from the magazine, there’s this phrase: “The following is an abridged version of an article that appears in the July 12, 2010 print and iPad editions of TIME.”

Late last month, Reuters’ Felix Salmon noticed that a Time.com story he followed a link to wasn’t all there — it was just a snippet and a note saying that “To read TIME Magazine in its entirety, subscribe or download the issue on the iPad.” But by the following morning, the full story was back as if nothing happened.

The fact that nearly every major article in the current issue online is now cut short — and that each has the new this-is-an-abridged-magazine-article note — would seem to indicate this is part of a new shift at Time. (A few pieces are posted in full, but even the letters page gets cut off. Even a slideshow, that ultimate driver of pageviews, gets chopped down to just a single slide.)

At this rate, every news outlet with some variant of “time” in their title will be charging digital readers in one way or another. A quick Googling seems to indicate this is new with the July 12 issue.

We’ve got a call into Time to get additional details, but a few quick thoughts:

— It’s interesting that Time would consider this kind of a move when (a) its major rival, Newsweek, is getting roughed up economically, and (b) managing editor Richard Stengel has been proudly proclaiming that Time was “very profitable last year, and we will be even more profitable this year.”

— Time’s website is popular, and there’s still plenty of free content on it — just not, apparently, the weekly magazine itself. News paywalls tend to be more about protecting print as a standalone product than about building a new online revenue stream. So maybe making the content differentiation between the two stronger makes sense.

— But this is a paywall without a door: There appears to be no way to buy access to the magazine from within a web browser — either an individual article or the full issue. The push is all toward print and the magazine’s iPad app. Is that a temporary shortfall, while Time figures out the best way to charge for web access? Or is it a sign publishers are concluding that the web is so problematic a platform for news-as-paid-content that they’re better off using it as a simple promotional platform for iPad apps and paper?

— Given all that, is it just ironic justice or something more that the current Time cover story was written by none other than Steven Brill?

May 24 2010

14:00

Consumer Reports rolling out paid content mobile strategy, taps potential users to set prices

The journalism world is still grappling with to-charge-or-not-to-charge, but it’s clear charging has the momentum — particularly on mobile devices. The New York Times is moving ahead with its January paywall plans and has put only a limited selection of stories in its iPad app. The Wall Street Journal is hunkering down with its paid-content model. The Washington Post waded in a few months ago with a 99-cent iPhone app. But the decision to charge is really two decisions: whether to charge and, if so, how much to charge.

One longstanding news outlet — Consumer Reports — made the first decision long ago and, true to its roots, keeps doing tests on the second. It accepts no advertising and is funded almost entirely by the sales of its publications and donations. Those funds support a staff of more than 600 people and runs a compound with multiple labs testing everything from cereal to toilets, plus a separate track and offroad track where it tests cars and SUVs. “‘Free’ is something we don’t like to use around here very often,” Jerry Steinbrink, its vice president of publishing, told me. Readers have to cover the cost of producing the content, and no project can operate at a loss, he said.

Strategic pricing

The magazine is strategic about setting prices, often borrowing from its own editorial practices. In determining how to charge for its new mobile website, for example, it ran tests with potential users. The magazine is in the process of testing out pricing plans for its “next-generation” iPhone app, which is still in development. (Their current app provides only limited access to CR content.) One group of app testers will be asked how much they’d pay for the tool; another group will be asked to react to some suggested prices.

“Because we are Consumer Reports, we test everything,” Steinbrink told me. “We depend a lot on focus groups. We’re trying to determine, with user input, what an acceptable price point would be.” Steinbrink wasn’t prepared to give a likely figure for the Consumer Reports iPhone app, but considering its functionality — it allows you to take a picture of any barcode, which will pull up all data Consumer Reports has on the product — and CR’s business model, don’t expect it to be a run-of-the-mill 99-cent app. Steinbrink thinks it might require a subscription fee that is renewed a few times a year, perhaps putting it in the range of their website which costs $26 per year.

Mobile strategy

Their new mobile site, which works on any web-enabled mobile device, lets users look up product information and compare items. (The barcode feature will only be available in the app.) For now, that site costs 99 cents for a 24-hour pass, or $4.99 for a month. Subscribers to the Consumer Reports website ($26 per year) can access the mobile site for free, but magazine subscribers ($29 per year) still must pay for web access, just like non-subscribers. By mid-summer, Consumer Reports expects to eliminate the 99-cent option, and lower the monthly fee to $3.99. Subscriptions are a better model for Consumer Reports, Steinbrink said, because they offer the magazine a more predictable, consistent income.

The choice to build both a mobile site and an app was deliberate, Matthew Goldfeder, director of mobile products told me. “Mobile use is going up, and will only continue to go up,” he said, predicting that some of the “sexyness” of apps may wear off as mobile web browsing improves.

There’s also another strategy at play. Consumer Reports hopes the mobile site will get new users to subscribe to the full website, which has many more features and more information than the mobile version. Both Consumer Reports’ site and the magazine skew older; the typical site user is a white male in his early 50s. They’d like to get younger users — say, recent college graduates buying electronics — to identify with a brand they associate with their parents. When that recent grad eventually buys a first house, hopefully Consumer Reports will come to mind. The magazine wants to give users “the kind of content that goes with their life cycle,” Goldfeder told me.

From niche to news

Consumer Reports is more like some of the niche sites we’ve written about recently than a traditional American newspaper. Sites in the niches offer unique and valued information that a certain readership is willing to pay good money to read.

Duke economist Jay Hamilton divides information into four categories: producer information (info that lets you do your job better), consumer information (info that helps you make a better purchasing decision), entertainment information (fun), and civic information (info to make you a smarter voter and citizen). Hamilton says the first three categories have it relatively easy, but the fourth one will always have trouble charging. Just as The Wall Street Journal fits nicely into Category 1, Consumer Reports slides obviously into Category 2.

Still, Steinbrink said there are some lessons general news publishers could learn from Consumer Reports. Shrinking ad revenue “forces editors to look at their content and produce the kind of quality a user will actually pay for.” Just putting a paywall in front of content that used to be free might not be enough.

March 09 2010

17:37

Google’s Hal Varian to newspapers at FTC confab: “Experiment, experiment, experiment!”

Google’s economist-in-chief, Hal Varian, was the keynote speaker this morning at the Federal Trade Commission’s second round of hearings on the future of journalism. (The study is entitled “How will journalism survive the internet age?” Round 1 was held in December; transcripts and other material are linked here — scroll down. Not to be outdone, the Federal Communications Commission also has a project studying pretty much the same thing.)

Here’s the slide deck from Varian’s presentation, entitled “Newspaper Economics, Online and Offline”:

(Lab readers may recognize some of the slides and data as having appeared here previously. I provided some input to Varian as he prepared his talk. Varian also posted the presentation and a summary of his remarks at the Google Public Policy Blog.)

Varian took a leave of absence from academia a few years ago to take charge, among other things, of tweaking and explaining the workings of Google’s brilliantly clever auction pricing mechanisms for text ads. He’s also involved in analysis, finance, corporate strategy, and public policy.

Google has been in the crosshairs of the newspaper industry as newspapers struggle to hold onto print revenue in the face of digital onslaughts, including the text ads that bring Google the bulk of its $24 billion 2009 revenue (equivalent to about 85 percent of the entire newspaper industry’s ad sales). The industry’s biggest beef with the search giant is that it sees content aggregation on Google News as pilfering, without compensation, page views that ought to be going to newspaper sites; Google counters that it delivers a hefty share of total traffic at news sites (and that publishers can opt out of Google News if they really want to).

Varian offered no magic potion for newspapers, other than exhorting the industry to “experiment, experiment, experiment,” and to get better at analyzing and exploiting the information they can glean from their site visitor data. He began with a series of slides illustrating the dismal trend lines of the newspaper industry and its place in the media environment:

  • Newspapers’ share of total ad expenditures have been dropping pretty steadily since the 1940s, from a 37 percent share down to barely 10 percent today.
  • Newspaper ad revenue kept pace with GDP until the mid-1980s (both inflation-adjusted), but since then, it has disconnected and fallen — not just during periods of recession but during the entire 2002-2008 expansion as well.
  • Online ad revenue at newspapers has grown to just 5 percent of total ad revenue, failing to offset the declines suffered in other categories, particularly classified.
  • Circulation as been falling from its 1970-1990 plateau of about 60 million copies, but on a per-household basis has dropped steadily from 1.2 copies per household in 1947 to about 0.4 copies per household currently.
  • While television still predominates as a source of national and international news for most people, in 2009 “Internet” surpassed newspapers as a source reported by consumers.

Twenty-six percent of all Americans (46 percent of those under 50) access news by mobile phone, and an astonishing 80 percent get news from e-mailed links, Varian said. But (as first analyzed right here at the Lab), only three percent of all consumption of newspaper-generated content happens online; 97 percent is still consumed in printed newspapers. This is true whether you measure pageviews in print and online, or time spent with printed newspapers versus newspaper web sites.

Still, news consumption ranks high among online activities of consumers, with 39 percent getting online news “yesterday” (according to the Pew Internet and American Life Project, 2008), ranking it the third-most-popular reported activity (after e-mailing at 56 percent and using search engines at 49 percent).

Using Google data, Varian showed that accessing news exceeds search on weekdays, but drops to a fraction of its weekday level on weekends, when search leads. From this he concludes that much access to news and newspaper sites happens in the workplace, when consumers have time only for quick checks of headlines, not for in-depth reading.

The challenge for newspapers, therefore, is to “increase involvement in the news by turning it back into a leisure-time activity.” He sees tablets and mobile phones as helping to do that.

ComScore data shows that search engines send 35 to 40 percent of traffic to major U.S. news sites — so, assuming that this traffic monetizes about the same as other traffic, search engines must be driving 35 to 40 percent of revenue, as well, Varian said. But he suggested newspapers could do a better job using the data that comes along with the search click (the keywords used in the search), and using it to categorize the reader’s interests and tailor content suggestions and advertising accordingly.

One problem with this, I’ve found, is that about half of visits that come via search engines tend to be generic — users type the name of the paper, the URL, or a variant thereof, into the search field, using it in lieu of their browser’s address bar. But of the non-generic search clicks, Varian pointed out that most are for categories like sports, news/current events, and local (Google’s categories), which are difficult to monetize, while few are for the more lucrative areas of travel, health, shopping, computers, and electronics. “So the news narrowly defined is pretty hard to monetize.”

What about charging the consumer for news online, then? Varian’s answer:

My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition…You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

Varian concluded with this exhortation to publishers: “The three things newspapers should do is experiment, experiment, experiment!” He cited a few options from Google, like Living Stories and starred stories that can be followed for updates during the day.

“I’m a big fan of the new devices,” he said. The iPad, Kindle and other tablets introduce a “completely different ergonomics for accessing the news…so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news…So I would like to see this — this area develop and we’re doing what we can to help that happen.”

Finally, Varian urged newspapers to better exploit the information they have:

You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web log [stats] is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs [stats] — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting.

Here’s a full transcript of Varian’s remarks, as recorded by the FTC’s transcription service. (Note: This is not fully cleaned up or compared with a recorded version. I’ve inserted the slide numbers at the appropriate points.)

Wow, thank you very much for that kind introduction. Happy to be here. [1] As you heard, we’re going to talk about on-line and off line economics of newspapers. [2] And basically this is going to be mostly a fact-based presentation, looking at revenue, costs, advertising level change, composition, and so on. Most of the talk is from the data from the newspaper association of America that’s put up a lot of trends on the website, a key foundation of some of the other sources and a little bit of Google data that’s also emerged with this report.

[3] So I want to start off with a little overview of what revenues and costs look like for newspapers. And basically the bottom line here is 80% of the revenue roughly comes from advertising, 20% from sales. If you break down the cost side of newspapers, turns out that about 50% of the costs are production and distribution, that is the physical production and distribution of the newspaper, obviously it’s attractive if you can reduce your costs by 50% for any business. So the promise to the internet is just to reduce costs. I understand we’re going to hear much more detail about that this afternoon.

[4] If you look at ad spend by medium in the United States, I pulled this data from the U.S. Statistical Abstract. Of course, the big gorilla in the room is TV. You look at broadcast and cable TV, you’ve got by far the largest expenditure on advertising on those two media. Surprising enough, the next biggest thing is direct mail. Then after direct mail comes the — comes the newspapers. You look at how things have changed over the years, broadcast TV has gone down a little bit. Cable TV has grown by quite a bit, almost a factor of three. The internet’s grown from nothing in 1995 to about 5% of ad expenditures in 2008. And newspapers, As you can see, have contracted from about 23% down to maybe 13% or so. So the big changes are apparent in this diagram. And I guess the next talk is going to be perhaps some more up-to-date figures on the advertising business and newspapers. Newspapers, of course, are still about three times as large in terms of ad revenue as the internet, so there’s still quite a major force in the advertising world.

[5] This is another chart showing pretty much the same thing. If you look at newspapers, that’s the blue line, they’ve been going down since basically 1950 in terms of media share. If you look at the yellow line, that’s TV and cable. That’s been going up quite dramatically over the same period. And way down there in the bottom right-hand corner, that light blue line, is the internet which came from pretty much nothing up until the — maybe late 1990 s started to become a force in — in advertising and other media stayed more or less the same.

[6] Now this is a plot of GDP which I just put there to have a general measure of economic activity and newspaper ad revenue. And I’ve adjusted it but the consumer price index that you can see what the changes will be in the real term. So basically we have real GDP and real newspaper ad revenue. And you can see, it’s pretty much pieced back in the late ‘80 s, since then, more or less conference in the last couple of years where it took a big dropdown. By the way, the vertical grade bars are recessions. One thing to note is that typically during recessions, advertising expenditures are quite sensitive to cyclical conditions so you can see GDP dropping and advertising expenditures dropping as well. The last couple of years have been dropping outside and even more than the economy would indicate and we’ll see an echo of that in one of the — one of the later slides. The important point is that newspaper ad revenue pretty much Maxed out way before the internet came on the — on the scene.

[7] This is a picture of what ad revenue looks like by type, again, measured in constant dollars. So typically it’s broken down into four different categories, retail, which would tend to be local stores, national, which would be national brand advertising, classified, the blue segment there, and then on-line is the tiny little green segment that kind of popped up a few years ago. You can see what’s going on is retail advertising has been growing over this period. The brand advertising has been contracting and classified advertising stayed pretty much the same up until the last few years at which point it dropped fairly precipitously.

[8] This is the same chart only measured in shares so you can see the share and we’ll have a lot more clearly. I think the important point to note here is the on-line ad revenue is still — as of 2008, at least — is substantially less than 5%.

[9] What about circulation? If you look at circulation, the chart on the upper left-hand corner, the circulation stayed constant for a long period of time and drop in the last couple of years, but, of course, it’s a little bit misleading just to look at total circulation, what you’re most interested in, most likely, is circulation per house hold. So if you look at paid circulation per person, over on the right, you can see it was declining since the ‘60 s and pretty much a steady manner. The interesting thing is, if you look at ad revenue per reader, or ad revenue per circulation, it actually was increasing since the late ‘60 s with a few up s and downs in the recessionary periods and so on, but by in large increasing up until very recently in the last few years. But the ad revenue per circulation is going up even though ad revenue is going down because the circulation has been going down so much. So it’s the denominator that’s been causing this effect.

[10] And here’s another chart just showing circulation which, again, has been remarkably constant between say 55 million and 60 million copies.

[11] And here’s a chart of circulation per household, which is also been pretty stable in terms of its decline. Back in 1947, you were seeing a little over one newspaper per house hold, which I presume is morning and evening editions in many cases. But that’s gone down to something like 40 — .4 newspapers per household in today’s world.

[12] And this is the chart that — well, we just heard Susan refer to that now the internet has surpassed physical newspapers as the popular way of accessing information. I would say television is — got a pretty substantial lead on both of them. And, of course, most of the internet access is access to newspaper sites. So they aren’t, of course, the physical paper.

[13] In that same report, there were some interesting trends about getting news by phone. 26% of all Americans said that they actually access news on their phones and 43% of those under 50 — so this is yet another medium by which people can access news. But in many cases, given the interface that’s available, people are looking at weather or at current events because reading in depth on your phone may be somewhat inconvenient. I thought one of the more fascinating numbers that came out of the PEW report is that 8 80% of people get news by e-mailed links. That’s one of the more popular distribution mechanisms now. You see an interesting story, you send it to their friends. You go to the websites, you see the most mailed stories MRKS are accessed on people’s computers and now, increasingly, on handheld devices. And we shouldn’t think of a single medium per person. Half the population surveyed said they used four to six different media for accessing news. So it’s important to distinguish in these discussions between newspapers traditionally considered as the physical newspaper and, of course, all the other ways you can access news, on TV, on your phone, on your computer, your lap top, etc.

[14] Now, if you add it all up and you look at the difference between physical newspaper reading and on-line newspaper reading, you get this kind of amazing statistic that’s due to Martin Langeveld at Harvard['s Nieman Journalism Lab]. Only about 3% of total news comes on the computer. Most of it comes from looking at physical newspapers. You get nice numbers looking at the web data. This is data from the Newspaper Association Of America. People are spend 38 minutes per month on on-line news which works out about 70 seconds a day. Whereas a person who reads a physical newspaper tends to spend about 25 minutes a day. There’s also time use studies to back these numbers up. So even though accessing news on-line is a very popular thing to do, it’s actually the case that people are not spending nearly as much time on the newspaper on-line as those people are who are reading physical newspaper. Of course, they’re different populations, so you have to compare these carefully. But roughly speaking, about 3% of either page views or time accessing on-line news — sorry — 3% of the total access to newspapers is done on-line. On the other hand, it’s accessed quite often.

[15] This is from data from the U.S. statistical abstract. Also it came from Pew, that roughly 40% of adult internet users say they accessed news yesterday. And. In, if you look at those with household incomes of $75,000 or more, it’s about 53%. So it’s very popular to access that on-line news, it’s just that people aren’t spending a huge amount of time on it, at least compared to the people who are reading the physical newspaper.

[16] If you look, for example, at total number of hours per year where people are accessing newspapers or reading newspapers, it’s about — let’s see, in 2008, 168 hours per year. So roughly works out to 25 minutes a day. In terms of physical newspaper consumption — that’s the same order of magnitude as the time people spend on the internet.

[17] News — the third most popular activity on-line, sending a regular e-mail, using a search engine, getting news on-line. Those are, again, the three top things that people do on the internet, but they’re spending a lot more time, for example, reading e-mail than they are looking at the on-line news. Now this is a little bit of a paradox. Let me stop for a minute and show you the charts. The paradox is, it’s popular to access news on-line, but they don’t spend time doing it. Why is that? That’s the mystery. How much time they do it compared to physically reading the newspaper.

[18] So I pulled some Google data and I looked at the time use pattern of access to Google news. So what you got down there on the bottom are the hours in the over a couple of weeks. The two little small bumps are the weekend access. And the — the five bumps between them are the daily access. So the red line is search activities. This is how many people are searching Google for things. And the blue line is the news activity. So I plotted both of these charts from the area of — each graph is normalized to be one, so it’s measured in percentage terms.

So what’s the first thing you see in the blue line is a lot further up than the red line. What that says is that people are accessing the news during the day a lot more frequently than they’re doing searches. And if you go over to look at the weekend, you can see the searches dramatically exceed the news, people are doing searches more on the weekend than they’re accessing the news. What that suggests to me is that people are accessing on-line news a lot during business hours. It’s not so surprising that they’re not spending a whole lot of time on it because offline news reading is a leisure-time activity. You do it over a cup of coffee, you do it in the evening, maybe. Whereas on-line news reading, that’s a labor time activity. People snatch a few minutes out of the day to check the sports scores or the headlines or something of that sort. So if that’s true, people are spending much less time looking at on-line news than they traditionally spent reading on-line news because they’re doing it during working hours, much less during leisure ours. During leisure hours, you might sit and watch TV, as a matter of fact, it would be a common thing to do.

So the challenge, I think, that’s facing the newspaper industry is to try to turn that on-line newspaper access which is much more attractive way to reach a broader audience is to increase involvement of the news by turning it back to a leisure-time activity.

[19] If you look at the value of clicks sent to newspapers, according to COMSCORE, it’s 35% to 40% of the traffic to news sites. That monetizes about as well as other traffic, that means that search engines are driving about 35% to 40% of traffic of revenues, on-line news sites. Which is a substantial amount. However I have to remind you that the on-line news revenue is about 5% of the total. So even though they’re driving a substantial fracture of the on-line revenue that’s still a relatively small amount of the total revenue.

[20] One thing that’s interesting to do is if you look at a search click that goes to the newspaper site, the newspaper is sent a query — or any site, not just the newspaper site, the site is sent a query that generated that search click. And that means that the site that received the search click could direct the user to the appropriate section of the site. So you can take those queries that people are issuing when they click on news sites and ask, what are the categories? What are people looking for when they go to these on-line news sites?

And I’ve done that. It turns out that the kinds of things that people are looking for when they’re going to these on-line news sites are sports, news and current events, and local — those are the top-level categories that we use at Google categorize search clicks. But there’s relatively the same in travel, shopping, so on. And roughly the same in entertainment, computers, and electronics. I’m comparing searches that go to newspapers to just searches in general that go to sites that aren’t specifically classified as newspapers. I say newspapers, I mean sites indexed by Google news.

Now the bad thing — or maybe not the bad thing, just a fact is, that if you look at the money in on-line advertising, the money is in categories like travel, health, shopping, and consumer electronics. But if you look at the revenue that’s going to newspapers. That’s in sports, news, and current events and local. And believe me, it’s very, very hard to monetize those categories because there isn’t as much consumer dollars spent in those areas as there are in areas like travel, health, and shopping.

[21] So the news narrowly defined is pretty hard to monetize. Despite the fact that it’s popular and frequently accessed, there’s a relatively low level of involvement because of the time constraints that people face, and it’s typically not a highly commercial activity. In fact, newspapers have never made money from news. You look at where the revenue came from, they made money from the business page, the automotive page, home and garden, travel and technology, all those parts of the newspaper that wasn’t the raw news, not the newspapers. Why? You can target ads, not surprising that people who read the automotive page are interested in buying cars or people who look at the travel section might be interested in taking trips.You can see targeted ads in the physical newspaper but tied to the sections. Then it’s the revenue generated from those sections which are used to cross subsidize the actual production of news.

And what’s happened is, this has been a problem with this intermediation that now people can go directly to finance sites, to auto sites, to consumer electronics, books, to travel sites, real estate sites, and so on, so people go directly to seeking those specific sources of information, they tend to bypass the traditional sections of the newspaper and so the cross subsiization model that’s worked for many years has not really work ed now. It’s very hard to do conceptual targeting of the news. If you’re reading the travel section and you see a story about Hawaii, you wouldn’t be surprised to see ads for travel to Hawaii next to that story. If you read the news section and you see bombing in Baghdad, you’re not likely to see travel ads or anything else particularly relevant to that story. So it’s very, very difficult to do the same kind of cross subsidization we’ve seen work in the past.

[22] If you go look at advertising verticals for newspapers, you can see 20% is general merchandise, 14% financial. That would tend to be in the business section of the paper, home supplies, furniture and so on. So you look at the breakdown of where the money is coming from, then it tends to be somewhat different from the kinds of things that people are making money on on search engines and general internet advertising. Of course, all this doesn’t mean that newspapers aren’t valuable. You heard earlier — I would absolutely second that is critical both from the individuals and societal point of view. People find it valuable because people are going to look at news on-line. We see half of internet users read news on-line at some time or another. They just don’t spend a whole lot of time on it.

[23] I’ve seen this big debate on whether you can charge for news, replace the advertising model. My view is, yes, I mean, you should try for sure. But there is this difficulty that you run into when you start thinking about the economics of it is that you can really only charge for thing ifs they’re differentiated. There are a lot of substitutes for a product then it’s hard to charge for it. Then you have this problem, what economists call Bertrand competition — one seller sets it price here, one could sell it down. You get this competing down to the lowest common denominator.

So you really have to have news that’s highly differentiated in order to support a charging model. One time I thought, well, local news, that’s highly differentiated. Local football scores, things like that. Then I realized all of the moms and dads are in the audience on twitter with the mobile phones, maybe the news isn’t so highly differentiated after all, they’ve got mostly specialized industry content, points of view, analyses are not easily imitated are also a case that they can differentiate news. I’m agnostic on whether the charging will work. I think it’s worth a try, but you can only try it for something that’s going to be unique content. It’s very hard to charge for, let’s say, the weather, or something of that sort.

[24] So, in summary, if you go through and look at all of this, newspaper ad revenue is pretty much cost adjusted for dollars. The circulation per capita is going down since 1947. The really big increase of advertising revenues come from cable TV and that’s way before the internet. You do have this problem with on-line news that people are using it differently than they’ve used offline news. They tend to access it more episodically, and the challenge that the newspapers face is how can they use that to — how can they turn that deeper access to the news to the kind of deeper involvement that they would like to have? Maybe what you need, everyone said this is maybe not the news, but engagement. You need to increase the engagement with news.

[25] And the three things newspapers should do is experiment, experiment, experiment. Google has been working on doing some of the experimentations, I think a promising avenue is try to link news access during the day so you use this rather brief occasional access to stories, to a much bigger engagement, partially by shifting some of the access to leisure time.

So we’ve done things like living stories where you work with major newspapers to try to string together all of the items about a particular story as the newspaper developed through the day. Got this capability called star stories, you can look at a story and star it and then you can follow what happens in that story. Maybe look at it later when you have some free time, and other things like that. I’m a big fan of the new devices. I think that things like the ipad or the kindle and this whole group of tab let computing is going to potentially make a big difference because it gives you completely different ergonomics for accessing the news. If people are accessing on-line news at their workstation, computer, or their laptop during the day and they have a lot of things going on, when you come home, probably you don’t want to go sit in front of your laptop or your workstation at home to do the same thing. What you might want to do is sit in your easy chair and look at your tablet where you can follow some of the stories that you might have seen accessed originally at work.

Of course, this isn’t going to be a flat textural description, it’s going to be multimedia in those devices, and so what I believe they’ll see is a merger of the TV, magazine, radio, and newspaper experience. You’ll have a device which will access all of the different medias. Give you a deeper — potentially deeper involvement with the news. Because what happens with TV is you get this emotional experience from the visual side, but in many cases, it’s frustrating because you can’t go deeper in to the story because the newspaper, the physical newspaper with textural material you can go deeper in the story but maybe don’t have the same emotional involvement, get them both together, then potentially you can have a very positive and interesting and worthwhile experience. So I would like to see this — this area develop and we’re doing what we can to help that happen.

Finally, the last point is newspapers should better exploit the information they have. You know, in many cases, the newspaper website is seen as — as something that for the techies or the person who’s managing the web blog is doing it just to look at how performance is working. But it’s hugely valuable information in those web logs — both from an editorial point of view and from a marketing point of view. There’s lots of interesting things that you can do when you understand why people are coming to your site, where they’re spending the most time, what they’re coming back to. It’s just extremely valuable information. I think newspapers can spend more time on analyzing that information and end up with better ad effectiveness measuring better contextual targeting and editorial targeting. I think I’ll end there. And thank you very much for your attention.

March 04 2010

17:16

Washington Post gauging readers’ willingness on paid content, both on new iPhone app and on the website

The Washington Post caused a bit of a stir yesterday when it announced a $1.99-a-year iPhone app. The choice was interesting both because it offered time-limited access to content and because of the low price point — at a time when other newspaper execs are apparently debating prices more than 100 times greater. As our friend Mac Slocum put it: “$1.99 for 12 months of Washington Post content — is that *too* reasonable?”

This morning I spoke with Goli Sheikholeslami, the vice president and general manager of digital operations for The Washington Post/ She said that the Post isn’t thinking about the $1.99 a year as a moneymaker in itself.

“It’s not really so much about this from the point of view of a large revenue stream, but trying to gauge how our readers react to paying for content,” she explained. “It really provides us with a platform for experimentation.”

Why $1.99? The Post considered it a price iPhone users are accustomed to paying, so they’d start there. I asked Sheikholeslami if, beyond the annual subscription fee, there might be other premium content available for in-app purchase. Sports Illustrated’s free swimsuit app has generated a lot of $1.99 purchases inside the app for more bikinis. And Rodale has had success selling additional content within its workout apps; one in three users buys additional content within an app.

“That model does sound like a sound one,” Sheikholeslami said. “Offering a product for free and then a premium product inside of it might be something we’d consider. We might want to test around and see if that model works.”

What about online? Is the Post priming customers to pay for the Post’s online content?

“Right now we don’t have any sort of immediate plans [to charge for web content], but we’re definitely thinking about what new products we can create, including on the web,” Sheikholeslami told me. “If it makes sense to charge for it, we would.”

In addition to the subscription fee, the Post’s new app includes a prominent splash-page ad and display ads throughout the app. Some have argued that advertisers might find an audience that’s paid for digital content more attractive to advertisers than one that is surfing freely. But Sheikholeslami told me the ad strategy isn’t connected to the subscription model.

“I wouldn’t say it’s more or less attractive. From an advertising perspective we do think we can attract a sizeable audience, even with a paid iPhone app,” she said.

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