Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Papers charging readers would be death-knell of industry

Posted by Richard Koman - March 23, 2007

Tom just pointed out a study from a publishing conference that found that only one publisher - magazine powerhouse Meredith - was profiting from their online operations.

And in the Chronicle, David Lazarus' column today follows up on an earlier one in which he asserted that newspapers should bite the bullet and charge for their websites. Right now, only the Wall Street Journal is principally behind a paywall and the New York Times locks up most of its big-name columnists.

In his earlier column, Pay-to-play is one way to help save newspapers, Lazarus offers a cockamamie scheme for industry collusion, in which the entire industry would agree to charge for content. He means not just charging for some content, but charging for everything. Since industry collusion is illegal, he thinks Congress should offer the industry an antitrust exemption.

The industry would never agree to this because it would destroy the newspaper business, as I explain below.

Even if the industry wanted it, it would never happen. Newspapers have already had their asses pulled out of the fire that is economic reality by joint operating agreements. The Chronicle and the Examiner co-existed for many years by that antitrust exemption. In recent years, Hearst managed to take over the Chron, foist the Exam onto the Fangs and degrade the quality of SF's morning paper.

Granting that an antitrust exemption ain't gonna happen, he likes the Viacom model: Sue Google.

"Maybe newspapers should follow Viacom's example," said Jane Kirtley, a professor of media ethics and law at the University of Minnesota. "You need to go after all the people making money off your content."

That would be the Belgian papers' model, the problem being Google doesn't run ads on Google News. The competition is more indirect. The blogosphere (a "silly term," Lazarus says) relies on links to daily news content. Google makes money by placing ads on blogs (and newspaper sites). And it is the blogosphere that Lazurus has a special enmity for.

The blogosphere -- a silly term coined by bloggers to legitimize their posturing -- is comprised by and large of people whose work consists of commenting on the work of others.

Thanks to Google, I'm able to stay abreast of what's said about my work online. Dozens of bloggers weighed in on my earlier column, and not one -- not one -- did a lick of original reporting in challenging my ideas.

So if newspapers want to pull a Viacom, throw up paywalls in front of all reporting and shut down the blogosphere, that might be their prerogative.

The problem is that newspapers - and indeed society - is confused about whether newspapers are businesses or public trusts. The press is the Fourth Estate, right? Indeed, the mythology that newspapers are a public trust is so strong that newspaper reporters and executives seem to feel that no matter how lame their offerings, if it's printed on a broadsheet, the public should prop up the enterprise.

Those days are over. The print business continues to fall. For papers that know what they're doing online and are moving aggressively, online is the rising star.

Let's do the numbers

Take the Washington Post. The paper reported their fourth quarter numbers last month (these are all year-over-year numbers): Net income down from $102.4m to $95.5m, recruitment classified ad revenue down 22% to $12.5m, daily circ down 2.9%, Sunday circ down 3.2%.

Where's the bright spot? Online revenue up 22% to $30 million. Display online revenue up 46% over the prior year and 35% just in the last quarter. Online classified revenue up 18% for the year and 8% for the quarter.

With numbers like that, why are the Post's profits going down? Expenses have increased 17 percent. And what expenses?

The decline in fourth quarter operating income is due primarily to a decline in print advertising revenue at The Post and increased pension expense.

$47 million in pension buyouts. Increases in newsprint costs. While the Post has been investing in its online operations, it's been the expenses in buying early retirements and printing the dead-tree paper that are dragging the operation down, even as advertising is clearly migrating online.

By having a vibrant, well-staffed and technologically up-to-date online operation, the Post is grabbing a large part of the money as it shifts from paper to online. Other papers are cutting back resources, operating online divisions with a couple of production guys and are surprised that online is a loss leader.

How long before the Post's online numbers and newsprint numbers meet at around $300 million? At this rate, not long. Perhaps users will never pay for online content. But it's clear that having users pay for the printed paper is small solace if the print operation runs at a deficit.

Crappy content not blogger freeloading is the problem

Lesson? Investing in making your website really good, infused with blogs, video and social networking features, technically able to do the most basic things like actually linking to URLs, and most importantly investing in solid reporting and writers will make online a very viable option. Especially if you have a diversity of ways to monetize traffic once you get it.

If newspapers aren't happy with their online traffic, perhaps it's because there's not much worth reading. Lazarus says:

The New York Times model of charging for select content would seem to be an approach that many local papers could emulate. Why couldn't The Chronicle, for example, charge readers for online access to Matier & Ross or Tim Goodman ... or me?

If he can't tell the difference between Tom Friedman and Tim Goodman ... therein lays the problem.

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