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Matthew Buckland has a great guest post on Silicon Valley Watcher looking at Google’s Newspass payment system for publishers. (It’s cross-posted from memeburn.com)  Buckland compares the value proposition for users with Google’s system and the system that Rupert Murdoch has instituted at The Times. He likens Newspass to a cable television subscription in which a consumer makes a one off, predictable payment to receive a package of content each month. He says:

Take the analogy of satellite TV. You pay once and you get a bouquet of hundreds of channels. The transaction is simple and easy. You know you’re getting good value for money too because there is an economy-of-scale effect at work. Now imagine another scenario: What if you have to pay individually for each TV channel and go through the effort, time and extra cost to do so. It’s a no brainer really.

Of course from the consumer’s point of view, it makes a lot more sense to pay once for a bundle of content rather than paying subs to several different providers or micro-payments for individual pieces of content. However, if newspaper groups had the rationality to think about creating value propositions for their readers, they might have spared themselves the mess that they are in.

The big question, as Matthew highlights, is whether a significant number of publishers will choose to join Newspass or create their own payment system. I’m not sure that such a payment system would be possible in all jurisdictions based on competition/anti-trust law. That notwithstanding, knowing publishers, I would expect them to lobby for a relaxation of anti-competition laws in their own countries to make such a system possible rather than partner with Google, which they have as Matthew rightly points out, a love-hate relationship with. I’d say that it’s bordering on hate-hate these days, but that’s a matter of interpretation.

Matthew sees Google as a “dispassionate third party”, but with the egos in publishing and the ‘not invented here bias’, I’m not sure that publishers see Google as dispassionate or without skin in the game. Murdoch and his lieutenants, though possible an extreme example, refer to Google as a “parasite”. For them to be pushed into partnering with the likes of Google, they would have to be pressured into seeing past their almost self-destructively hyper-competitive natures and see that some loss of advantage was worth new revenue streams. In fact, I would see them being more open to partnering with another company just in an attempt to screw Google. Despite the existential threat facing some newspapers and newspaper groups, I’m not sure that they have seen the light, by which I mean the light some reportedly see with near-death experiences.

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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.

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If you walk into a newspaper newsroom, you will hear something said over and over: “You can’t make money online”. It’s closely followed by grumbles of how much the company spends on digital. These are held up as some incontrovertible truth, like carrots help you see better.

Just as ‘carrots help you see better’ was propaganda spread by the British Air Ministry to conceal the military secret of radar, the ‘truth’ that there is no money to be made online is nonsense. It’s unquestioned propaganda in newspaper newsrooms where there is an unnecessary, senseless and ultimately self-destructive battle to keep the newspaper focused on paper, a battle driven by advocates of the primacy of print.

I’m not calling for the presses to be shut off. Rather, I’m calling for innovation in both print and digital. This battle to preserve the past is preventing companies from creating print and digital products that serve 21st Century audiences. Companies that are clear-headed and audience-driven are developing multi-platform strategies that are reversing decades long decline in profits and print circulation while increasing the share of revenue from digital. Those newspapers who remain focused on print are missing that opportunity.

It’s true that print makes the bulk of newspaper revenue, usually around 80%. But in focussing on outdated print strategies newspapers are creating a self-fulfilling prophecy: By not investing in digital, they ensure that digital revenues remain small in comparison to print.

In the US, Outsell found that in the news segment, largely made up of newspapers, only 11% of their revenues were from digital. In comparison, B2B publishers made 36% of their revenues from digital. Outsell analyst Ken Doctor said, “Simply put, the news industry has so far failed to make the digital transition.”

Although 11% of revenue doesn’t seem a good return, they have to be viewed in context. Print revenues are declining as a decades-long circulation drops no longer make print advertising as attractive. Digital revenues have been increasing, sometimes even through the recession, but it is usually from a very low base.

Commercial departments will also often tell you that it’s just not possible to make money online. In many instances, news organisations have built up huge audiences online but have failed to translate that audience into revenue. They will even refuse to investigate the opportunities afforded by digital on the basis that it would require them to do something different.

Commercial departments who say it’s not possible to make money online need to shoulder their responsibility for their failure to help newspapers make the transition to digital. If the current commercial strategy isn’t working – and old print ad sales strategies are not working very well online – why not try a new one? As the adage goes, if you do what you’ve always done, you’ll get what you’ve always got.

There is hope, though. Folio has two great profiles of two publishers re-inventing themselves: The Christian Science Monitor and The Atlantic. Both profiles dive deep into details of the two different publications.

After rising losses, The Christian Science Monitor shifted from a daily newspaper to a web-first strategy with a weekly news magazine. One thing that stands out in the profile of the Monitor is how much audience research they have conducted and continue to conduct with more than 3,500 readers. They found out why people had stopped taking the newspaper: Cost, lack of time and a shift to getting headlines online. I really liked the way that publisher Jonathan Wells summed up how they re-thought their value proposition:

We had to think long and hard about it. Our approach is a composite of the learning economy—we’re serving people without a lot of time, who are trying to understand complex issues quickly, and contribute to a solution. As one guy here says, our mission is ‘Help me get smarter, faster.’

One thing that jumped out at me was how willing they were to be nimble and to rethink not only how they worked digitally but also their print strategy. As they said, they were able to convert 93% of their print readers from the daily to weekly, and they’ve increased subscriptions by 63% since the shift. Increasing circulation going from 2009 to 2010 is something that most publishers would have killed for. They are not pursuing newsstand sales. They are focused on attracting the “right customers through controlled, targeted growth,” according to senior marketing director Susan Hackney.

They have also increased their page views by 49%, and they are looking to develop a line of digital products. This is all really smart, strategic and refreshing in an industry that seems to be mostly focused on squeezing the last bits of profit out of declining business models. That’s just a taster of an excellent article.

Folio also did an excellent profile of The Atlantic, which is managing to reverse a revenue decline that began in the 1960s. I often say that news organisations need to disrupt their business before someone else does. Atlantic Media president Justin Smith did just that, pushing for a digital-first strategy. From the Folio article:

(Smith) stressed that print is not dead, but taking this approach allowed the company to unlock its grip on traditional revenue sources. Importantly, the Web site’s overhaul was set up as an insurgency on the print brand. “If our mission was to kill the magazine, what would we do?” said Smith, who added that a digital competitor was going to do that anyway, so they did it themselves.

They are projecting that digital will account for 39% of their revenue in 2010. They not only shifted to digital first, but they also took a novel marketing approach, setting up their own marketing services division in an effort to differentiate themselves from ad networks. I’ll leave you to read the rest of the article, and I’ll give you one last reason to read the rest. After decades of decline, they looking at a profitable fourth quarter of 2010 and a multi-million profit in 2011.

To reposition themselves, these publications are looking for innovation from both print and digital but with a digital first strategy. The Monitor is using audience research to deliver products more relevant to their audiences, and they are thinking clearly about where they need to go and how nimble they need to be to achieve success.

We can rebuild businesses to support quality journalism, and here are two examples that show a few options for the way forward.

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Emily Bell left for the Guardian to become the director of a new centre for digital journalism at Columbia University, and let me congratulate her on the opportunity. Simon Waldman, described as the Guardian Media Group digital strategy chief by the Media Guardian, is leaving to join the DVD by mail service LoveFilm.

Now at the Telegraph, the Media Guardian is reporting that Will Lewis has been forced out over a disagreement with the publisher on the newspaper’s direction. What is shocking is that Lewis had just launched a new internal digital incubator just last November, the so-called Euston Project. He was named Journalist of the Year in March for the Telegraph’s scoop on the MPs’ expenses scandal last year.

My former colleague Roy Greenslade has details. It appears that Lewis wanted the Euston Project to be a standalone business and the publisher disagreed.

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In a hint at the thinking behind the New York Times’ paid content strategy, a local paper it owns will allow subscribers to read all news content, but non-subscribers will be asked to pay after viewing a “predetermined number of staff-generated local news articles“. The Times owned Worcester Telegram & Gazette writes:

After users pass that limit, they will be asked to pay a monthly charge or buy a day pass. The price and threshold have not been determined.

The article states that most content on the site will remain free with the pay meter being set only for content produced by the Telegram & Gazette news staff.

This is yet another refinement in the paid content strategies being proposed, and it moves further away from the kind of binary, universal paywall versus free argument. The binary argument makes good copy, a nice bit of media biz argy bargy, but it hasn’t done much to help the failing fortunes of the newspaper business. Besides, most sensible people in the business know that a more sophisticated, hybrid model has a greater chance of success.

I’m not familiar with the Worcester Telegram & Gazette. The big questions for me are around how much original content they produce on a given day and the competition they face from local radio and television. The bulk of their website will remain free even for non-subscribers. Will the staff content be enough of a draw to get people to pay? We shall see, but it will be great to get some data from an increasing number of experiments so that the paid content discussion moves past some of the faith-based decision making stage.

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Steve Yelvington flagged up a comment piece on the New York Times from Dick Brass, a vice president at Microsoft from 1997 until 2004. Brass worked on Microsoft’s tablet PC efforts, something I remember covering at Comdex in 2002. Despite a huge push by Microsoft, they never became mainstream outside of a few niche applications, and Brass blames it in part from in-fighting at Microsoft. Brass wrote:

Internal competition is common at great companies. It can be wisely encouraged to force ideas to compete. The problem comes when the competition becomes uncontrolled and destructive. At Microsoft, it has created a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence. It’s not an accident that almost all the executives in charge of Microsoft’s music, e-books, phone, online, search and tablet efforts over the past decade have left.

Brass predicted that unless Microsoft was able to overcome this dysfunctional corporate culture and regained “its creative spark” that it might not have much of a future. In highlighting Brass’ piece, Steve wrote in his tweet:

Every behavior that’s killing Microsoft, I’ve seen at a newspaper company. http://bit.ly/9W30W8

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The Poynter Institute in the US hosted an online discussion asking if journalists are giving up on newspapers after high-profile departures there including Jennifer 8. Lee, who accepted a buy out at the New York Times, and Anthony Moor, who left newspapers to become a local editor for Yahoo. Moor told the US newspaper trade magazine Editor & Publisher – which just announced it is ceasing publication after 125 years:

Part of this is recognition that newspapers have limited resources, they are saddled with legitimate legacy businesses that they have to focus on first. I am a digital guy and the digital world is evolving rapidly. I don’t want to have to wait for the traditional news industry to catch up.

This frustration has been there for a while with digital journalists, but many chose to stay with newspapers or sites tied to other legacy media because of resources, industry reputation and better job security. However, with the newspaper industry in turmoil, now the benefits of staying are less obvious.

Jim Brady, who was the executive editor of WashingtonPost.com but is now heading up a local project in Washington DC for Allbritton Communications, said on Twitter:

A few years ago, the risk of leaping from a newspaper to a digital startup was huge. Now, the risk of staying at a newspaper is also huge.

Aside from risk, Jim echoed Moor’s comments in an interview with paidContent:

Being on the digital side is where my heart is. Secondly, I think doing something that was not associated with a legacy product was important.

In speaking with other long-time digital journalists, I hear this comment frequently. Many are yearning to see what is possible in terms of digital journalism without having to think of a legacy product – radio, TV or print. There is also the sense from some digital journalists that when print and digital newsrooms merged that it was the digital journalists and editors who lost out. In a special report on the integration of print and online newsrooms for Editor & Publisher, Joe Strupp writes:

Yet the convergence is happening. And as newsrooms combine online and print operations into single entities, power struggles are brewing among many in charge. More and more as these unifications occur, it’s the online side that’s losing authority.

It’s naive to think that these power struggles won’t happen, but they are a distraction that the industry can ill afford during this recession. In the Editor & Publisher report, Kinsey Wilson, former executive editor of USA Today and editor of its Web site from 2000-2005, said that during the convergence at USA Today and the New York Times:

We both had a period of a year or two when our capacity to innovate on the Web stopped, or was even set back a bit

Digital models are emerging that are successful. Most are focused and lean such as paidContent (although it has cut back during the recession, I’d consider its acquisition by The Guardian, my employer, as a mark of success) and expanding US political site Talking Points Memo. There are opportunities in the US for journalists who want to focus on the internet as their platform.

Back to the Poynter discussion, Kelly McBride of Poynter said during the live discussion:

I talk to a lot of journalists around the country. I don’t think they are giving up journalism at all. I do think some of them have been let down by newspapers. But a lot are holding out. They are committed to staying in newspapers as long as they can, because they are doing good work.

It’s well worth reading through the discussion. I am sure that many journalists have some of the same questions.

What was the verdict? Poynter discussion - Are journalists giving up on newspapers?

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As I wrote in my post from earlier today, I didn’t know if the statistics from the American Press Institute about paid content held up for the UK market. As if on cue, paidContent.co.uk (owned by the folks who pay my bills at the Guardian) have commissioned a survey in the UK by Harris Interactive that track very closely with the US numbers. According to the figures from API, a 2009 Belden survey in the US found that if content was no longer available for free on a newspaper website that 68% of respondents would turn to “other local Internet sites.” The Harris survey in the UK found even worse figures: 74% would turn to another free website.

Robert Andrews at paidContent.co.uk has a thorough run-down of the numbers and looks at age, demographics and geographical differences in the data. One thing that leapt out at me is that London had the highest figures for those willing to pay if their favourite news site began charging, but even in the media capital of the UK, a scant 17% would be willing to open up their pocketbooks.

Another statistic that I found interesting is that 16-24 year-olds were much more willing to pay than any other age group. It’s still not a high percentage, 13%, but it is much higher than the 1-2% of anyone over 35. Is that because younger age groups value the internet as an information source more or because they are more accustomed to paying for content online or on their mobile phones? The survey doesn’t answer these questions although it might be contained in user interviews that are not discussed in the post.

I am sure that people on both sides of the paid content debate will look at these figures and find in them data that supports their position. However, it is difficult to use these numbers to posit a case where paid content online becomes a major source or revenue that will replace the declining revenue in the traditional print business.

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It seems to have become fashionable recently for members of the media to rail against Google, claiming that the search giant is significantly to blame for the demise of newspapers. The arguments appear to include:

  • Google is a parasite that makes money off newspapers content through aggregating it
  • Google, by acting as a middleman, deprives newspapers of control and therefore income
  • Visitors from Google are of low value because they do not stay to explore a site and therefore are not exposed to enough ads to make their visit worthwhile to the news outlet

In my opinion, these arguments are all wrong, but rather than debate them here (other people are already doing it), I’m curious to ask why two key parts of the problem are being utterly ignored.

Google enables existing behaviours
Before newspapers started publishing on the web, newspaper readers had a limited number of choices if they wanted to read what the paper had printed: read someone else’s copy, or buy and read their own. Once someone has bought a paper, the tendency is to read substantial portions of it, or even read it cover-to-cover including the bits one doesn’t really care about.

I am sure that there are psychological forces at work here, perhaps cognitive biases such as ownership bias. After all, who hasn’t felt the desire to get the most value for money out of a newspaper or magazine purchase by reading as much as one can manage, even when one has run out of any real interest?

That behaviour, and the forces that encourage it, is absent online. Instead of feeling obliged to oneself to make the most of a newspaper purchase, people are now searching for only the information that they need or want. They become promiscuous browsers, instead of dedicated readers.

Google facilitates that behaviour, a behaviour which was present before Google existed, and which will continue after Google is gone. The news outlets, however, are fixated on the idea of a dedicated reader and I’ve heard some journalists get positively indignant at the suggestion that promiscuous browsing is not just a normal behaviour, but rapidly becoming the default. They think that dedicated reading is the one true way to absorb news, and look down upon anything else.

This prejudice is damaging the news industry badly, because if your whole revenue generating mechanism, not to mention your metrics for success, is built upon the idea of people spending lots of time on your site, reading lots of articles, then your business is built on sand. Instead of working from a set of assumptions that are no longer valid, how about the news industry learns how their readers’ lives, attitudes and behaviours have changed, and uses that as a basis for developing a more robust business model. After all, people aren’t going to go back to their old habits. Ever.

Advertising innovation can be done by companies other than Google
Whilst Google News runs no adverts, news content does make its way into the general search results where advertising does very well for Google. This, for reasons unclear to me, is seen by some in the news industry as a grave assault, to be fought and destroyed.

Yet Google, alongside Craigslist, Gumtree and their brethren, are ripe for advertising disruption. The sites that were the disrupters can themselves be sideswiped, by the very sort of clever innovation that appears to be almost entirely lacking in the news industry. Why have news outlets not put together their own versions of TextAds and AdSense, allowing advertisers to buy text ads on certain topics, categories, or keywords? Can I go to a major news website and buy a keyword directly from them? Why are news organisations, who have been in the advertising game forever, relying on third party tools to spread excess ad inventory across their extended blog network? Why give away that slice of the pie to someone else?

Where is the advertising innovation? And no, annoying pop-ups, rich-media ads and irritatingly loud audio ads do not count. They are about as innovative as a slap round the face with a wet haddock – they are old school, scattershot, relying on interruption instead of relevance, and worst of all, they infuriate the visitor so much that even if the ads had been of interest, their childishness is terminally off-putting.

It feels like the news outlets have abdicated responsibility for finding new and better ways for their advertisers to buy space, time and keywords, to manage their own accounts, make their own decisions on where they want their ads to appear and manage their own budget.

It’s time for the news outlets to reclaim advertising, to learn from Google, Craigslist and Gumtree and beat them at their own game. Railing away at Google or any other site that’s eating their lunch is, however, a waste of time and a distraction that the industry can ill afford at the moment.

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Four years ago, I went to the Web+10 conference at the Poynter Institute in Florida. It was an honour to meet some of the pioneers in digital journalism, many of whom I had corresponded with online for years but never had the opportunity to meet. It was 2005, long before the depth of the crisis in newspapers was obvious to all, but everyone was asking the same question: How do we pay for professional journalism? Contrary to popular belief in the industry, newspaper websites were profitable, some quite profitable, but those profits could not sustain the size of newsroom that big-city metros in the US had at the time, newsrooms that dwarfed the size of the British national newspapers.

The crisis has been coming for years as newspapers have seen circulation declines for decades, but the Great Recession is amplifying pressures on newspapers. You read blog posts and articles from journalists and editors who say that the public should pay, must pay for ‘quality journalism’. We hear arguments that they will pay as content becomes scarce with the decline in the number of journalists and the number of newspapers. Leonard Witt, the Robert D. Fowler Distinguished Chair in Communication at Kennesaw State University in the US, says in this post:

So will people pay for high quality journalism and information? I do think so because I know one person intimately who already has. And trust me that person is very tight with his money.

Keep in mind, I am saying high quality news and information. Run of the mill junk is a worthless commodity. High quality journalism is scarce and will be more so in the future, and that’s when everyone who loves great journalism will begin to pay.

But I tend to agree with David Kohn, of spot.us, who says this in the comments:

I think this is right on Lenn – as you know, I tend to agree with you. But more and more I’m realizing that certain types of news and information that journalists think is priceless have less value than others.

David elaborates on his point back on his blog citing lessons he’s learned from various citizen journalism and crowd-sourced projects.

Increasingly I’m of the belief that the newspaper industry is relying far too much on its values in its estimates of what readers value enough to pay for. We need some solid facts and figures on what people will pay for. I might be hoping for concrete data that just doesn’t exist right now, but I think we as journalists have to move from asserting what people should pay for and do a little reporting and research to find out what people will pay for and the types of services that might be able to subsidise professional journalism.

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