For 400 Years Newspapers Charged For Their Content, and Then Came the Internet And They Gave It Away. Brilliant Marketing or Plain Stupidity?
Second of Three Parts

Philip M. Stone April 10, 2005

Mainstream newspapers charge for their print editions and circulation continues to decline at a fastening pace even though advertising revenue is up slightly. Many of those same newspapers produce free web sites utilizing most of the print edition copy and, coincidence or not, as paid print circulation declines the free web visitors increase.

Add to that web site advertising had a very strong Q1 and is forecast to have an even stronger Q2 and, apart from declining print circulation, it looks pretty good for publishers. But in fact many publishers are looking at that as doom and gloom. They worry that their Internet success cuts into the profitability of their print editions, and although the Internet has great growth potential it only represents some 3% of a newspaper’s total revenues.

Their response -- retrench web activities to protect at all costs the traditional print revenue. And part of that means taking another look at the Internet advertising model that calls for free news. Maybe web subscriptions could halt the print edition declines?

The issue is that for all their growth potential, Internet web sites revenue when compared to print edition revenue is miniscule even though 2005 forecast web revenue will equal about 45% of a publication’s advertising growth, according to a new report by Borrell Associates. But since it is the print edition that brings in the really big money, publishers worry that the web site success comes at the cost of the print edition’s circulation loss – readers are giving up the profitable print edition to read the same news on the newspaper’s web site for free.

If newspaper circulation goes down, then advertising rates will decline, and it becomes a never-ending spiral leading to newspaper failure.

So, keeping in mind  that cliché about closing the barn door after the horses have bolted, is now the time to start charging for newspaper news on the Internet? The fudged answer is that it depends on what you are really trying to achieve.

For publishers that want to protect the print edition no matter what, web subscription is the way to go. Some 40 US newspapers, in fact, have had success in offering their web sites at no charge if the user has a newspaper subscription. No print subscription then the web site costs the same as a newspaper subscription. That strategy works best in an environment where the reader really can’t find that newspaper news anywhere else on the Internet. If a competitive site suddenly shows up with that local news then the strategy is in trouble.

One step up from that is the Wall Street Journal strategy. It charges a subscription to its web site whether or not the user subscribes to the print edition, but print subscribers get a 50% reduction off the web fee. The Journal claims some 700,000 web subscribers, but it can get away with that because it has an edge – it carries probably the most complete financial reporting available in print or on the web.. In the UK the Financial Times follows the same strategy and it, too, gets away with it for the same reason. Their niche is business news and they do it best.

But of the 1,456 daily newspapers in the US, with the exception of some small dailies who “own” their market no one else has followed the Journal’s strategy. The Journal doesn’t really like being out there all alone, and its executives often complain they do not understand how newspapers can charge for print editions and yet give their news away for free on the Internet.

Some newspapers, particularly in Asia, are finding some success by offering advertising-supported free web sites for local users but charging international visitors trying to access local news on those sites.

But by and large those sites that did charge international readers have found it not worth the trouble. This author, based in Switzerland, used to read the UK Sunday Times on the web until some bright marketing type decided that UK users could continue to have free access but access from outside the UK would cost around €130 annually. And that was the end of that web reading habit. But in an about-face the service recently reversed course, reopened the site for free to everyone and its number of unique visitors has doubled.

The accountants no doubt are telling Mr. Murdoch whether increased advertising revenues from that free web site is worth more than a few thousand web subscriptions. Mr. Murdoch has, anyway, called in the consultants to advise News International how it can make the best use of the Internet, and the industry as a whole is anxious to learn what McKinsey advises.

But it’s that type of math – the masses reading for free but attracting the advertisers versus far fewer readers but they pay for the privilege – that stops newspapers that know in their hearts they should not be giving their news away, from changing course.

Such raging debates are said to be going on in the New York Times whose web site has more visitors daily than the print edition has circulation.

The Times already charges for archive stories and crosswords, but that revenue amounts to basic petty cash. The real money comes from the advertising revenue, and the Times actually pays Topix, a news aggregator, to display its stories so readers will hyperlink to the Times’ own web site.

As noted in the first part of this series, the smart publishers will try and have their cake and eat it.  Continue to earn the highest revenues possible from the web by offering the site for free as advertising supported, but employ great convergence between the print edition and the web site. The newspaper can promote that its web site offers more text, pictures and video about local stories covered in the newspaper, and the web site can promote that the newspaper has some features and columns that will only be found in the print edition. Cross promotion, and making the need to have both products, is really the order of the day.

One thing for sure – Internet growth does not look like it is going away any time soon. The Newspaper Association of America has started a major project this year to track the success of newspaper web sites. It has already concluded, “Online newspaper usage represents one of the single largest audience collectives on the Internet, and usage is on the rise.

The smart publisher won’t fight that, but rather will adapt business strategies to ensure newspaper web site revenue grows as forecast, but that print continues as the major revenue force it is. It does not have to be one or the other!

(Second of three parts. Part one discussed how there should be convergence between the print edition and the web site and part three looks at how newspapers can best compete against newspapers)