Opinions

Free news expectation demands new business model

In print | February 4, 2010

It is not uncommon nowadays for pundits to claim that the news industry is dying. This is a misrepresentation of what is happening in an industry that is desperately trying to change its business model by taking advantage of new technologies. More news is consumed now than ever before.

A Kaiser Family Foundation study found that kids 8 to 18 years old average seven and a half hours a day consuming different media types—second only to sleeping. The problem is that only three minutes of that is spent on newspapers.

While overall consumption of media is steadily on the rise, consumers do not pay for their news and have grown to expect not to pay for information. The challenge the industry faces is to change this expectation.

The news industry won’t die. But to see why it won’t, we need some information about exactly why news isn’t doing well and what new business models could be the answer to monetizing those countless hours of media consumption.

Print news is dying
While print circulation and advertising revenues are dropping, newspapers still face high fixed costs like running printing presses. They must also invest ever larger sums in running appealing and reliable websites.

Since the circulation of virtually all newspapers has fallen, advertisers are willing to pay less and less for ads in print editions. Even classifieds, which used to be a big portion of newspaper advertisement revenues, are paying off less; they are being supplanted by services such as Craigslist, which are more convenient for the public.

The news industry now faces a dual pressure of falling revenues and rising costs. At the same time, charging more for a print subscription is becoming ever more difficult as consumers are increasingly willing, able and even eager to read news on their computers.

Web news isn’t doing much better
Most newspapers in the United States have been losing money for years. As consumers increasingly get their news from the web, newspapers have found their print circulation dropping steadily. At the same time, print advertising revenue has plummeted precipitously. Even the web is already failing to live up to the high hopes of publishers and editors. Web advertising revenue, which increased drastically for many years, dropped by two percent in 2008 and is expected to drop further in the future. Advertising agencies are unwilling to pay the same premium they paid for print ads, in part because consumers simply ignore most online advertisements. Coupled with the overwhelming consumer demand for free news, the web is turning against newspapers, which can’t compete with blogs and other websites that may cover news but do not send out their own reporters and mostly rely on other publications’ stories.

Quality journalism comes at a price
While it is difficult to determine whether the quality of journalism has dropped over the past years, it is certain that many cuts have been made in the number of reporters that newspapers hire, especially those based internationally. Across the board, newspapers are cutting coverage. It might not appear that they do, but newspapers are increasingly substituting wire stories, which they receive from corporations like the Associated Press, for their own coverage. A direct consequence is that more and more readers now get their news from one semi-anonymous source. In addition to this change, newspapers are also shifting from national and international to local and regional coverage, which is less costly. Together these trends lead us to a situation in which consumers will eventually have to pay to access quality journalism.

Future business models that may work
The New York Times, the nation’s largest newspaper, recently announced that it will start charging online readers for most of its content in early 2011. The newspaper will allow readers to view a fixed number of articles on its website for free before charging them a monthly fee for further access. The New York Times Company has considerable resources at its disposal that it can employ to set up an infrastructure to charge for online access. Many local and even regional newspapers, however, won’t be able to make such investments. Some large newspapers, though, are now experimenting with charging for part or most of their news content on their websites. The Wall Street Journal has adopted a successful model in which it provides most news reports for free on its website but charges for analysis and other data that will be of use to its audience. But the Journal’s audience is specialized and might be more willing to pay for online news content than the general public.

Before Apple released its tablet device, the iPad, last week, there had been much speculation about whether the device might create a new business model for the news industry. Critics had hoped that it would cause a fundamental shift in consumer behavior that would allow newspapers to monetize their online content more easily. Apple had earlier gotten consumers to make such changes twice: its music store iTunes has generated billions of dollars of revenue for music labels. Later, it persuaded consumers to regularly spend small amounts of money on “apps” that run on its signature phone, the iPhone. Unfortunately for the news industry, no such revolution occurred.

But there are some hopeful signs. Journalism Online, a startup founded by an entrepreneur and a publishing industry veteran, announced Tuesday that several news websites will soon begin using their software, meant to standardize charging for online content. The company developed a technology named Press+, which aims to benefit both publishers and consumers. Readers would have a single account for all websites that use the Press+ system and will be able to purchase access to online news without entering their personal information separately for each news website. At the same time, publishers will have full control over which content they will charge for and how much they might charge.

Using a system such as the one developed by Journalism Online removes the need for newspapers to invest heavily in building their own software to charge for online access. It might aid the news industry to put forth a widely accepted model that both large and small publications can use. For now, only a few newspapers have publicly announced that they will use the system, although Journalism Online claims that it has signed agreements with over 1300 publishers worldwide. And The New York Times has said that it will develop its own system to charge its readers. We are interested to see whether Press+ or another similar model will become successful and whether consumers will ultimately again be willing to pay for access to quality journalism.