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

Why Pay-For-News Won't Work: The First Mover Disadvantage

Posted by Tom Foremski - February 16, 2009

As newspapers lose revenues from their print business they are forced to rely on revenues from their online business. But their costs of running a news organization are far higher than their online revenues.

Print advertising was once able to cover the costs of running a newspaper and do it profitably. But online advertising cannot cover the costs of running a news organization--even when online readership is larger than paper readership and growing.

This problem of more readers, yet declining revenues, is frustrating the newspaper industry. Lately, there has been a tremendous amount of discussion within the newspaper industry on this issue and the emerging consensus is that readers will have to pay for the news. It might be micropayments, it might be a monthly subscription, but the era of free news is going to go away.

The Wall Street Journal is a good example of a business model that appears to be working--it offers some free news but it charges a subscription for most of its news. And this seems to be the type of business model with the most support among newspaper publishers.

But who will go first?

The Wall Street Journal is a specialist newspaper without much competition. Daily newspapers have a broad range of news content and there is a lot of overlap in their news stories. Any metropolitan daily newspaper will have many of the same stories as any other metropolitan daily.

They all use a tremendous amount of wire copy from Associated Press, Reuters, Dow Jones, Bloomberg, etc, even if the newswire stories are from their locality. This was fine when newspapers monopolized their regions because you couldn't get that news in any other way.

Now, thanks (or no thanks) to the Internet, newspapers thousands of miles from each other compete for the same readers. A columnist in Chicago now gets to compete against a columnist in New York or Philadelphia. A movie reviewer in San Diego now competes against a movie reviewer in Toronto.

Most newspapers have very low brand loyalty. More than 60 per cent of newspapers' web site traffic comes from search engines and news aggregators -- and not from people going directly to their site.

This is the first mover disadvantage. Lock up your content behind a paywall and your readers will find free news stories elsewhere.

There is a last mover advantage. The last newspaper to charge for content wins, at which point they'll also have a huge readership collected from all the other newspapers.

This is why pay-for-news won't work.

So what is the solution? How can newspapers transition to becoming viable news organizations that make money through paper or electron?

It's a situation best described by the Maine saying: "You can't get there from here." It's a phrase that doesn't seem make any sense but it makes perfect sense in this context: The mainstream media world cannot transition to the newstream media world of online revenues. Your online revenues cannot support the costs of your news organization. You can't get there from here.

This is why the Internet is a disruptive technology. And the key point about a disruptive technology is that it disrupts. It disrupts individual companies and entire industries. Even though you can clearly see the train wreck way ahead of you, you can't get out of the way, you cannot downsize quickly enough, you cannot change tracks quickly enough--you slam into it.

The newspaper industry clearly sees the train wreck of its print business model way ahead. It will slam straight into it.

- - -

Please see:

- "Google Devalues Everything It Touches" - Wall Street Journal Chief

- Bye-Bye Free News - Murdoch Joins The Pay Debate

- Saturday Post: The Inevitable Rise Of Cockroach Media . . .

- Pandora's Box 1981: The Online Newspaper Experiment

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