Digital Information: Business Models In Flux

Would you pay $5 a week ($260 a year) to subscribe to the online edition of your local newspaper … if the print+digital edition were only $3.98 a week or $1.50 for Sunday? Right, I thought not. You’re not alone. According to the New York Observer, only 35 people have ordered the pricy subscription-only plate on the Newsday menu.

However, the “only 35 new subscribers” soundbite really is not the story, on several levels.

In addition to being free with a subscription to the dead-trees edition of the paper, the Newsday website is free to anyone subscribing to Optimum Cable, jointly owned by the Dolans (who own the paper) and Cablevision. No wonder publisher Terry Jimenez recently told staff, “That’s 35 more than I would have thought it would have been.” (Me, too. Try to get an economist who buys into the “rational consumer” argument to explain this one.)

Last fall, Newsday imposed a 100 percent pay wall for the web site (except for the tidbits that you can glean from the home page). According to the Observer, the redesign and pay wall cost $4 million, and the paper lost $7 million in the first three quarters of 2009. (It’s not clear if the $4 million is on top of the $7 million or part of it.)

I haven’t seen data on the number of print or cable subscribers over the same three month period, but the Observer says that web site uniques have dropped almost a third, from 2.2 million in October to 1.5 million in December, per Nielsen. On the other hand, Newsday says that comScore data show an increase in “local uniques,” with 607,000 in December. [See why it’s difficult to compare numbers between different analytical services? How can Nielsen data be 2.5 times larger than comScore? See the anecdote at the bottom of this page.]

According to Paid Content, the pay wall was intended to “[create] additional value for the services Cablevision customers already get and [improve] engagement with local subscribers.” Supposedly 75 percent of Long Island households subscribe to either the paper or the cable service. Maybe owning a regulated monopoly (the local cable franchise) is one way for local newspaper monopolies to hang on a few more years, at least until the cable monopoly also goes “poof” from competition with the Internet.

The New York Times
Last week, the New York Times announced that it will begin charging an unspecified amount for online content in 2011. Publisher and chairman Arthur Sulzberger, Jr. : “we believe that our readers will pay for our award-winning digital content and services.” Concurrent with the announcement, NYT columnist David Carr pooh-pooed partnerships with Amazon (Kindle) and Apple (iTunes store) because “the company that controls the relationship with consumers is the one that owns the future… content is what [the NYT] manufactures, at a very dear cost, and its best for the paper to control pricing and grow its database of consumers.”

Suggesting that Carr didn’t know what he was writing about (not for the first time), less than a week later, NYT management announced a new business segment focused on “digital reading” (Kindle, Nook, Sony, and, perhaps, Apple tablet – only the iPhone app is free) and charged with becoming a “profit generating business.” A monthly subscription on the Kindle is $13.99. [The Kindle, Nook and Sony are dedicated devices that do facilitate content sharing, except via (perhaps) built-in widgets. It’s not clear to me why iPhone content is free; maybe it’s because the form factor is so small? One hopes the Apple tablet is more like a computer and less like an eReader or phone.]

Why digital reading is important: the New York Times average daily circulation dropped 7.3 percent from March to September. For the first time since 1985, average daily circulation was less than 1 million (927,851). Yet in January 2009, NYT management wrote, “we have 830,000 loyal readers who have subscribed to The New York Times for more than two years.” That’s far fewer newsstand sales than I would have guessed, unless the subscriber base has plummeted in the past year.

Scientific American
Finally, last week the Eisenhower Library at Johns Hopkins University in Maryland announced that students and faculty will no longer have access to the full online database of Scientific American, America’s oldest continuously published magazine. (The library stopped getting paper copies in December.) The reason? New owner Nature Publishing Group has raised the annual print subscription (12 issues, institutional subscription) almost an order of magnitude: from $39.95 to $299. At the same time, the annual license for online content jumped from to $1,500 from $1,000.

Personal subscriptions are $24.97 for the printed magazine and $39.95 for the digital edition, which includes archives only back to 1993. That’s an odd pricing model, since the digital edition includes no printing or physical distribution costs. In other words, I would expect to see those two prices reversed, were pricing strictly a function of cost, because the incremental cost of adding one magazine to the website archive is much much less than the costs of printing and mailing that same issue.

Musings On The Challenges
I do not believe that dedicated ebook readers will reach middle majority adoption until publishers figure out a true “used book” scheme. We want to be able to sell, loan or give away our books, but we can’t do that with ebooks (note that O’Reilly books are DRM-free).

I do not believe that significant numbers of consumers will subscribe to newspapers to be read on their ebook reader when the same content is available on the web. Moreover, I don’t think newspaper organizations really want this to happen — it’s short-sighted, because ebook readers do not currently facilitate easy “real time” public sharing (Facebook, Twitter).

In closing, let me show you a little example of the folly behind Newsday’s 100 percent pay wall (and why Nielsen and comScore can have wildly divergent “uniques”).

On Sunday, I was looking for a story about a service dog, Ricochet, who is now a surfer dog that works with kids who can’t walk but who can surf, with help.I’d watched a YouTube clip of the story, but couldn’t remember many details.

The first hit on my search was an AP story … housed on Newsday’s servers. (Ricochet lives in the San Diego area; I can’t explain the east coast search result.) Newsday makes it clear that I have to pay-to-view a story that Newsday did not produce and that is NOT local and that is freely available all over the place, including AP’s web site. So much for “improved engagement with local subscribers.” (And AP needs SEO help.)

So I looked at the next hit … and the next … and saw the complete story, over and over. Then I decided to take screen captures. Here are a few:

• Chattanooga
• Hagerstown, MD
• Malaysia
• Orlando

If — and I think that this is a very big if — pay walls are to work, it will be only for unique content. Oh, and Newsday needs to change its robots.txt file to block crawlers, unless they really do want to sell online-only subscriptions.

From the Archives:

• “No More Free Content” – March 2009
• Followup – “No More Free Content” – March 2009
• The Future of Journalism Discussions Need Reality Economics – May 2009
• “Aggregation” Is Not A Villain – June 2009
• Thinking About “Free”– October 2009
• Repeat After Me: Newspaper Consumers Have Never “Paid” For Content – January 2010
• Why the iPad (and kin) Is Unlikely To Yield Consumer Savings – February 2010
• WSJ iPad Pricing Model Is Bad News – March 2010
• MythBusters: Subscriptions Don’t Cover Salaries – March 2010
• Online Revenue Cannot Rescue Newspaper Biz Model – February 2011

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