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“No More Free Content”

newspaper ad revenue
Via The Economist and Alan D. Mutter (Newsosaur).

money

I think that if I hear another newspaper person utter this phrase — no more free content — I will scream. It’s either that or shoot the guy. (It’s almost always a guy.)

The latest missive to feature this demand comes from David Carr, writing in the Sunday New York Times (tip). Howard Kurtz alluded to it when writing about the demise of The Rocky Mountain News, asserting that “newspapers feel compelled to give away their content.” It was also a theme at the “No News Is Bad News” event in Seattle in February.

Why is this demand driving me crazy?

The implication in the “no more free content” meme — that all would be right in the newspapering world if online readers would just ante up — rests on a false assumption. News and information consumers, in the main, do not “pay” for news content! In my lifetime, all mass media have “given away” their content. There are exceptions (Consumer Reports comes to mind) but the “no more free content” folks are not talking about niche magazines: they’re talking about local daily newspapers.

The Myth of Paid Content
Before looking at local daily newspapers, let’s look at other mass media. The only “cost” associated with consuming broadcast television news and entertainment programming is buying a TV (or a computer with a TV card) and a sufficiently powerful antenna. The content is “free” to consume because it is supported by (subsidized by) advertising.

Let me say this again: broadcast television content is free. So is AM and FM radio content.

Now, let’s turn to newspapers, because that’s where the lament is loudest these days. (Local TV will be next, though, mark my words.)

First, is it possible to read the newspaper with no out-of-pocket cost? Yes, go to the library. Failing in that, go to a coffee shop or deli or restaurant and read an abandoned copy of today’s newspaper. Or go to a university, where copies of dailies are given away for free, one assumes to boost readership and thus ad rates.

Second, when you buy a subscription to a newspaper, are you “paying for the content”? No. You are paying for the delivery of the content. Maybe.

For example, a weekly Seattle Times or Seattle PI subscription is $5.00. (The Wall Street Journal? $3.49 for paper + web.) No one from the Seattle Times or PI or Wall Street Journal is going to tell me with a straight face that this covers the weekly cost of printing and distribution, much less the cost of the news staff. In 2000, subscriptions accounted for only about 20 percent of the newspaper industry revenue stream but newsprint alone was 15-30 percent of operating costs (Media Economics, p 114 and 116).

Newspaper subscribers are not paying for the news in the printed paper, we are paying for delivery (convenience). Single issue news stand sales: also convenience and delivery. The newspaper has been, effectively, giving the content away for decades. What, then, has changed?

Market Structure and Business Model
The newspaper industry in the U.S. could be characterized as one of local monopolies, with about 98 percent existing as the only daily in their markets (Media Economics, p 110). Advertisers used newspapers as a way to reach mass audiences, and, before CraigsList and eBay eroded the monopoly that was classified ads, about two-thirds of the content of a daily newspaper was advertising. Compare that with television (broadcast and cable), where the ratio is reversed: only about one-third of TV content is commercials.

Therefore, a sound argument could be made that the newspaper existed as a vehicle for advertisers, not for news. And when you consider that lifestyle, automotive and food section content is directly or indirectly linked to advertisers, it’s pretty clear that the “news” exists as an enticement to get newspaper readers to see ads.

Tell me how this means that readers were “paying” for content in the “good old days” model?

Between A Rock And A Hard Place
Subtract the percentage of news in a local daily newspaper that comes from a wire service. What’s left? Today’s Sunday’s Seattle Times, for example, had two locally-produced news stories in the “A” section (three if you count the front-page photo); three locally-produced stories in the “B” section; one in business; and one in real estate. (I didn’t check sports.) The remainder (excluding opinion and columns) was wire stories. This means that today’s newspaper reader has less and less of reason to buy the local paper: its relevance has dropped off a cliff.

Because of the loss of classified advertising revenue, today’s newspapers are smaller, both the number and size of pages.

It’s not surprising that newspaper owners are shrinking the size of the printed paper. For each daily issue, most of the non-variable cost (news staff, for example) is wrapped up in the first newspaper to roll off the printing press. As a newspaper’s readership declines, the cost per printed paper rises; there are fewer papers to share in the cost of that first paper off the press. To reduce costs, your make that first paper smaller.

This attempt to “save” themselves into profitability has instead made the product less valuable. The predictable result: lack of relevance + less content = declining readership of the printed paper. It’s a vicious circle.

From this perspective, today’s financial problem is a lack of advertising — not subscription — revenue. The advertising-subsidized content model is not new, whether we are talking TV, radio or newspapers. But it is not working — and may not work — in the digital space, where advertisers can tell how well their ads work (unlike radio, TV and print) … where the advertising-content ratio is unlikely to approach the 2-to-1 level of pre-CraigsList days … where audiences are no longer “mass” but instead are “niche” … and where scarcity has disappeared, giving online news all of the characteristics of a public good.

The picture I’ve painted of a business model gone bad is painful, some would say grim. But the news consumer is not the boogyman here, so stop blaming us. Instead, focus on finding a new business model that works in the digital world.

Featured image source.

By Kathy E. Gill

Digital evangelist, speaker, writer, educator. Transplanted Southerner; teach newbies to ride motorcycles! @kegill

45 replies on ““No More Free Content””

[…] “No More Free Content” expresses resentment that “news is no longer free”. Newspapers exist only for advertisements, not for the news. Fewer people are reading the news, thus fewer advertisers. Fewer advertisers, smaller newspapers, less people reading the news. An inevitable and agitated cycle. But, should we be surprised? Everything is privatized. Everything. Someone finds a small lake, puts some copyright laws into place, and then that lake is no longer “free”. People cannot fish in it, swim in it, drink from it. It is not the public’s any longer. If someone can gain a buck from something, it will be done. Privatize everything on the face of the planet. Why should news be free in this age of Neoliberalism? […]

Thanks for the feedback.

To MCRCohn: how could newspapers have “charged more” 50 years ago when they were facing the threat of TV?

Thanks, Hank, for pointing out that you can’t stay in business in the long term if costs exceed revenue. But, as you note, foundations can afford to take a long view if they aren’t look for double-digit (usury rates) return on their investment. However, regarding the NYT, it is under major financial pressure.

TO Charlotte: you’re welcome and thanks for the compliment.

Yes, Jason, thanks for the reminder. (Not!)

I think the problem is that people now expect free content so papers cannot charge for it. If, fifty years ago, papers had charged subscribers more, subscribers now would expect to pay for quality and correctness. But papers didn’t; they made revenue on ads. With print ad sales dropping, so are the papers. As a writer, though, I want and need to get paid somehow.

Evan: I know the St. Petersburg Times well — the Times Publishing Company is one of my clients. You are right that it is owned by a non-profit entity, the Poynter Institute. But that doesn’t insulate the newspaper from competitive pressures. If the St. Pete Times doesn’t make a profit, it is endangered, as is Poynter. The newspaper is intensely profit oriented. But because it is privately owned and not owned by a publicly traded company, its managers can afford to take a long term look rather than focus on the next quarter’s earnings and their impact on the stock price. For that reason, The St. Pete Times is willing to invest when others are cutting back. Even so, it has had to undergo some wrenching changes in recent months in response to the serious downturn in the Florida real estate market. By the way, The Times is generally regarded in newspaper circles as one of the ten best newspapers in the United States. When Time magazine used to publish such listings, it was included.

Kathy –
Thank you for this wonderfully clear and concise post!
I’d like to underscore one of your observations for a moment, because I think it may be key to finding new funding methods:
“Therefore, a sound argument could be made that the newspaper existed as a vehicle for advertisers, not for news.”
Us folks on the editorial side never wanted to think of it that way, but consumers most certainly did. Many a survey showed that more people bought the Sunday paper for the ads than for the news.
Now that the advertisers own their own printing presses (on the Web), things are all topsy turvy. They don’t need the paper or its Website, but they *do* need content. Hmmm.
On another note, call me crazy, but I am not as worried about who will fill the void in public service journalism. World-changing journalism has been and is being done outside the confines of papers, at news orgs that show a profit (God forbid).
As I wrote recently, “Newspapers don’t own journalism” (http://charlotteanne.wordpress.com/2009/03/04/newspapers-dont-own-journalism/).
Thank you!

Another excellent post, although we all learned what a fire-cracker it can be to rely on anecdotal evidence in counting wire-stories…

I’d also like to point out that there’s nothing wrong with asking for people to pay money for news. I think that we’re headed inevitably in that direction (see my previous comment), BUT it will be freemium/metered content, not subscription, and newspapers will never in a competitive market enjoy the 30-40% operating profit margins they once did.

If you ask me — and unfortunately, the world hasn’t asked me :) — the future of journalism and newsgathering is going to be the non-profit/public-funding model. Although I’m not sure that the British model is best because of the potentials for conflict and compromise between government control and government watchdog-ing, the BBC has, over the past 80-odd years, built one of the most wide-ranging and well-respected news organizations around. Another example to be looked at and learned from, without exactly duplicating, is NPR here in the US. Although Federal government funding makes up a large part of its budget, it also gets a big chunk of cash from corporate sponsors, which lead to compromise and possible self-censorship. Another example of a newspaper run by a non-profit is the St. Petersburg (FL) Times, owned and published by the Poynter Foundation. Although not generally cited among the top papers in the nation, it does serve one of the top 20 metro areas in the US, far surpasses its for-porfit competitor (Tampa Tribune) in circulation, and has managed to gather a number of Pulitzer prizes over the years. A final example of this kind of paper would be the Guardian UK, owned until recently by a public trust. Despite continuing financial losses, the Guardian continues to innovate, tying its future success to the web while using the freedom from purely finance-based decision-making required of shareholder-owned publications to look beyond next quarter’s P&L statements and try to uncover the future of jounralism. Today, in fact, the Guardian has decided to open-source its content and data to developers for use in all kinds of applications. (http://www.journalism.co.uk/2/articles/533755.php)

I too am concerned about who will fill the void. Our democracy relies on such checks and balances and someone/something has to fund that as amateurs and citizen journalists couldn’t possibly devote the time and resources to truly suss out wrongdoing, lies and corruption.

I agree with the assessment of the problem newspapers face. But it’s also important to note that not all newspapers face this problem. In other parts of the world, newspapers traditionally have been relatively expensive. That’s because they don’t rely heavily on advertising for revenue. Several European newspapers come to mind. The New York Times also has been quite successful in increasing its per copy and subscription price. The typical newspaper in the US gets twenty percent of its revenue from circulation and eighty percent from advertising. For The Times, the ratio is more like thirty percent to seventy percent. Still not enough to make up for the decline in classified ad revenue, but a step in the right direction.

In this country, there was little or no advertising revenue in the early days of newspaper publishing and magazine publishing. So publishers had to charge high per copy prices to cover all their costs. That meant newspapers and magazines had small circulations and were largely consumed by an intellectual elite.

Things began to change in the magazine business in 1883, when S.S. McClure dropped the price of McClure’s to 15 cents. Rival Frank Munsey did him one better, cutting the price of Munsey’s from 25 cents to ten cents. What they lost in circulation revenue they made up in greatly increased advertising revenue, thanks to the larger audiences they could aggregate.

On the newspaper front, things changed earlier, in 1833, with the introduction of the New York Morning Post, sold on the streets for one cent. It gave rise to the term “penny press,” which in some circles carried the opprobrium now carried by tabloids. Previously most newspapers cost six cents each and were primarily offered via subscription. The six-fold reduction in price meant an enormous increase in circulation and a new focus on advertising as a revenue source. Newspapers became a mass medium.

There’s no reason we can’t revert to the elite model, although I think society will be the worse for it. The transition will be wrenching for newspapers, many of which won’t survive the process because of their inability to get out of existing labor contracts and financing agreements and because of the cost of capital they have invested in massive printing plants.

So if Google continues to gobble up the advertising revenue, my guess is there eventually will be a small cadre of smart people who read expensive print newspapers (and visit their websites, which will be behind pay walls). And there will be an even greater mass of the great and stupid unwashed, who will get their news from Rush Limbaugh or uninformed bloggers. For a hilarious and simultaneously sobering look at our possible future, suggest everyone view the movie “Idiocracy.”

Kathy:

I couldn’t have said it better myself! We have trained generations of readers to devalue content, effectively setting the price at free. It’s a rare product that comes back from free to paid. All the moaning in the world won’t make such fantasies as micro-payments, subscriptions, walled gardens, etc. work. If wishes were horses … See my related post on the topic here http://www.blinking12.ca/2009/01/24/social-media-speed-dating-precis-2-of-4/

Cheers,

Doug

Excellent! I haven’t read a more straightforward refutation of the news industry’s ever-more-desperate claims that the internet and “free” content are the source of all their woes. It seems that all of our mass media industries are still stubbornly clinging to the belief that they are somehow special because they are involved with art or knowledge, when their “involvement” is simply a matter of packaging it up and shipping it out.

Their claims make as much sense as would a claim by the bottled-water manufacturers that city water and rainfall are destroying their industry. Packaging it up and shipping it out.

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