Honesty in the age of the paywall

After months of discussion and speculation, The Times and The Sunday Times have disappeared behind a paywall or have asked their readers to pay for the journalism that they value, depending on which side of an almost religious divide you fall on. Like a lot of commentary, I find the punditry and posturing around paywalls uninformed, over-simplistic and, frequently, disingenuous.

It is often said that people paid for journalism in print so they should pay for journalism online. If ‘they’ value journalism, they should pay for it.

No. As many people have pointed out, the cover price of a newspaper really just paid for the high capital costs of printing and distributing a newspaper. To put it bluntly: People paid for the platform, not for the content.

As the OECD said in its recent survey of the newspaper industry in 30 countries:

On the cost side, costs unrelated to editorial work such as production, maintenance, administration, promotion and advertising, and distribution dominate newspaper costs. These large fixed costs make newspaper organisations more vulnerable to the downturns and less agile in reacting to the online news environment.

For every newspaper journalist who moans about how much money their publication spends on running their website, I would ask them if they know how much the outlay is for printing the newspaper. Business Insider calculated that for the cost of printing and distribution the New York Times was twice the cost of sending every single subscriber Amazon’s Kindle e-reader.

Google’s chief economist Hal Varian looked at the US industry and found that in terms of core costs, only 14% of costs as a percentage of revenue went to pay for editorial. Production costs were 52% of newspaper costs by revenue. (Varian has sourced all of his statistics from the US Statistical Abstract, the Newspaper Association of America, the Pew Foundation and academic sources.)

Newspaper revenue and the great digital divide

However, here lies the conundrum for newspapers, which commenters point out on Business Insider. For most newspapers, the printed newspaper brings in roughly 80% of their revenue. With the current revenue mix, shutting off the presses is simply not an option without dramatically cutting the editorial staff. One example of this is the Seattle-Post Intelligencer, which went online only in 2009. Hearst laid off 160 employees and retained 20 “news gatherers”. It’s not necessarily a recipe for success, with traffic declining by 20% after the shift.

Digital must and can make up more of the revenue mix at newspapers. In its report, the OECD found that “online advertising only accounted for around four per cent of total newspaper revenues in 2009, and fell strongly in 2009”. However, and this is key, the report said:

In general, the online revenues of newspapers are miniscule in comparison to total revenues and online revenues of other digital content industries.

Many will say that it’s not possible to make enough money online to replace the revenue that used to flow to print. We have traded dollars in print for pennies online, they say. This is not an iron-clad law of digital content. Yes, digital margins are lower, but many content companies make money online.

In a recent Folio profile of Justin Smith’s turnaround of The Atlantic. Smith pushed for a digital first strategy, which to many in the newspaper industry probably sounds like heresy in 2010. The simple rebuttal to that would be Smith’s record of success. The Atlantic had seen declining circulation and revenue since the 1960s. In 2010, they project a turn to profit, with digital representing 39% of their revenue mix.

Innovating on the commercial side

The problem with newspapers’ digital strategies has been that they have largely been content strategies without effective commercial strategies. For too long at too many publications, digital advertising has simply been a sweetener bundled in with the print ad sales. For too long, we have not done enough to know our audiences online, understand their needs and adjust our strategies accordingly.

Those who have succeeded online often have innovated in terms of commercial models as much as they have in content creation. Google’s main revenue engine is advertising, serving up ads to people based on what they are searching for. Without that commercial innovation, Google would not be the billion-dollar company it is today if it’s business model was based solely on undifferentiated ads supporting a search service.

Indeed, I agree with this post on ExchangeWire that the publications that will benefit the most in the future “will be able to leverage that audience to generate more revenue from targeted ads or data trading” and goes on to say:

But if they are to have a commercial future, pubs will need to be become absolutely obsessed about their data and how it can be best used to unlock new revenue.

We’ll have to re-think print and digital and the revenue streams that support journalism on those platforms. We’ll need to re-think advertising and have commercial strategies that reflect differences in audiences and in editorial approaches.

Oversimplifying an issue is something that media excels at, and now, its lack of sophistication in dealing with issues is hitting closer to home. This is not simply an issue of free versus paid, not simply an issue of jettisoning freeloaders and extracting value from those who value journalism enough to pay for it. Creating such false dichotomies makes a good column in which complex issues are transformed into black and white choices for easy consumption, but simple analyses often lead to simple and simply ineffectual solutions.

Newspapers must end their dependence on the revenue from print or face continuing decline leading for many to total collapse. The industry has been having this civil war over paid versus free. Surely, the argument should be profitable versus unsustainable? We didn’t need Murdoch to build his paywall to prove a point, we already have examples of newspapers and magazines realising that they are in the news business not just the paper business.

For those labouring in the digital side of the business, once you’re making the majority of the revenue, you’ll not just have a seat at the table, in many cases, you’ll be at the head of it. It’s achievable. It’s necessary. There is no time to waste. The future of journalism (as opposed to the future of newspapers) depends on it.

2 thoughts on “Honesty in the age of the paywall

  1. Recapping a reax I just tweeted:

    The first consumer pushback against the idea of paid content that I ran into — in the mid-1990s — was the complaint that “I already paid for my Internet, I don’t see why I should have to pay twice.”

    In the old world, the newspaper was in multiple lines of business, and one of those lines of business was manufacturing and distribution of a physical product that people valued enough to purchase.

    On the Internet, tech companies have displaced the manufacturing and distribution component of newspapering. What’s left is inherently a smaller business.

    Consumers have already paid for the display device (hundreds, maybe even thousands of dollars) and the delivery system (monthly cable modem fees), but the cash all went to someone other than the content providers.

    And all of this is just one small part of the broader restructuring of media and marketing brought about by the Internet. The result is that these familiar business formulas no longer apply.

    None of this means that it’s impossible to persuade consumers to pay for some content and services.

    But as you point out, Kevin, simplistic notions that people “ought to pay” aren’t the way to get it done, and the paywall “strategies” being rammed through are so clumsy and amateurish that I almost think they’ve actually been designed to fail.

    You could pick a random street vendor out of a Bangkok bazaar and find a more sophisticated understanding of the psychology of getting people to pay for stuff than you get from the people running most of the world’s newspaper companies who think they are going to “make” people pay for content.

  2. In Violent Agreement with this wonderful Blog post – a Digital or Online Advertising Strategy is just an afterthought to most publishers, rather than identifying a strategic direction and then tactically implementing this plan. The Denver Post here in the US is starting to sell Sponsored Tweets as a way to augment advertising fees and offset the use of more restrictive paywalls. And, the San Francisco Chronicle is trying to distinguish articles used solely in print as opposed to online as a way to substantiate circulation sales, which have been dropping like a large stone in a deep well. Don’t think this strategy will be helpful for them in the long run.

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