If you’re still thinking about charging for online news in 2009, you’re dead already (a primer)

This afternoon I will once again be working with a group of editors as we look at business models for online news. To their credit, the micropayments/paywall issue rarely comes up – and then only as a ‘devil’s advocate’ question. But it seems others have been asleep for the past 10 years. To those and the unfortunate souls having to field these questions, I offer you the following primer culled from recent coverage of this pointless debate:

Recovering Journalist:

“Let’s look at the numbers, and I’ll keep this very simple: Imagine that a good-sized metro daily can charge $20 a year for access to its Web site, and that it attracts 500,000 people to pay that much to read whatever the paper puts online (and this assumes that the content is so unique that those readers won’t decide to take their business elsewhere when confronted with a pay wall). How much revenue is that? It’s $10 million a year.”

From If they won’t pay for Facebook, they won’t pay for your city hall reporter:

these kids have complete faith in the availability of a substitute good — that is, something else that would come along, serve as a decent Facebook surrogate, and be free.

“So, I ask you: If these kids aren’t willing to pay for Facebook — something they engage with every single day, something they love, something they have already invested countless hours into to build up a network of friends and apps and what have you — what’s the chance they’re ever going to pay half a penny to read a news story?”

From Jeff Jarvis:

“Micropayments have never been shown to work except when distribution is tightly controlled (see: mobile phones and iTunes). Subscriptions have been abandoned by The New York Times and others because the costs, enumerated above, are too high. A newspaper cartel is an oxymoron, as publishers have never shown the ability to self-organize (the last attempt in the U.S., the New Century Network, was a flaming disaster). Charities are lovely, but even the Scott Trust that generously supports this newspaper rose not out of pure altruism but out of a need to avoid inheritance taxes that would have forced a sale. Government support has been discussed in these pages but I, for one, am fearful of the notion of the prey feeding the watchdogs. The Kindle is cool but has a tiny audience.”

From Paid Content Strategies for News Websites (PDF), an academic study:

“Interviewee responses [executives at national newspapers] indicated a widespread consensus that it is impossible to charge for general news content, because it is freely available in a similar form elsewhere on the internet.”

From Printed Matters:

“Anyone in the content business knows that their product is not newspapers, or broadcasts, or magazines, or even news, or even content, or even information. No! It is readership. Your product is readership, which you sell to advertisers. More readers = more ads = more money. In the bad old print days, newspapers had to charge subscription fees to offset the costs of delivery. Hey, no more cost of delivery! Why charge subscription fees and limit your readership, then?

Paywalls don’t work: we don’t have to argue from principles. We can just gather empirical evidence.

Finally, from Brand Republic:

10 thoughts on “If you’re still thinking about charging for online news in 2009, you’re dead already (a primer)

  1. John Longbottom

    I think that you’re spot on. Given the economic climate at the moment, this would probably be a very bad time to start charging subscriptions. The ‘credit crunch’ is already making consumers cut back on things that they would normally buy (eg. actual newspapers), so they’re just going to turn to the free alternative rather than pay a subscription.

    I think the Jeff Jarvis quote is particularly true; “Micropayments have never been shown to work except when distribution is tightly controlled (see: mobile phones and iTunes)”.

    Printed Matter’s quote is also a really straight forward way of thinking about profitability in papers across the board “Your product is readership, which you sell to advertisers.” – fantastically concise + accurate.

  2. John Duncan

    You’re dead right and dead wrong at the same time.

    You’re dead right that anyone who thinks they can charge for their bog standard information online just because they need to is doomed. The supply of generally interesting content and very specific interesting content and the ability to sort through it and find it are such that the value of most content is zero.

    But you’re dead wrong in saying that micropayments don’t work or can’t work. They are already all around us. There are plenty of circumstances in which people pay for content in small chunks if it’s provided in a format that means they are actually buying something else as well. Generally that’s time or convenience or information that has monetary or social value from which other people are excluded.

    Facebook is a good example. There are two factors preventing Facebook charging subscriptions. They are a network business where there is really only room for one or two massively scaled providers. If they charged then they would cease to benefit from network effects and would be very quickly dead. Secondly competition – if they charged then along would come another service that didn’t. The low cost of setting up a social network service means that they can’t charge because a competitor will come along and offer the same service for free and take advantage of those pesky network effects.

    So what has this got to do with newspapers? Well, it means that ny newspaper that wants to be a mass medium can’t charge. But a newspaper that wants to specialise and develop deep walled content on something that matters to a big enough audience can indeed charge. They just won’t have anything like the sort of revenues that newspapers currently expect to have.

    The second element that this analysis and similar ones never take into account is the feedback loop. Given that online ad revenue can’t sustain any online only news operation, many of these newspapers are going to die and take their websites with them. That has a dramatic impact on the supply of certain types of content and potentially therefore in increasing the price above zero. Your assumption that there will always be an oversupply of reliable information online is an assumption I don’t share.

    It is silly to say that it is not possible to charge on a platform where content has previously been free. In fact that’s the norm.

    HBO makes good money on a “free” platform because their stuff is high quality and the price for alternative ways of getting that content is too high (wait for it to come to dvd or network TV vs $10 a month)

    I pay a few dollars a month for an ESPN Insider subscription because I hate hitting walls inside their site and they bundle it with a magazine.

    I pay 99c for a ringtone on my iphone that with a small amount of effort I could make for myself. But hey, what’s 99c vs messing around for 10 minutes with Garageband..

    I pay $12 a month for satellite radio even though I can get free radio because it goes deeper than I can get on broadcast radio.

    I pay $25 a month to Lynda.com so I can have training videos at my fingertips rather than have to scramble around a bunch of Knowledgebases designed in 1996.

    But what you’re doing has to be exclusive and it has to make life more convenient. Anything that doesn’t meet these criteria is indeed doomed to fail as a paid medium.

    In the end I feel quite positive about all this. If we get to a point where content producers find niches and alliances that create information that people value enough and ways of delivering them conveniently enough to give them value then journalism becomes harder … but possibly better. That’s good.

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  7. paulbradshaw

    Thanks John – I agree there are ways to charge for content online, but my headline was about online news – not training videos or entertainment or ringtones or other content. But I also think the micropayments strategy is stifling real creativity in online business models. If you look at the successful business models online, they’re not based on micropayments; they’re based on being useful platforms that either generate a large enough audience to sell advertising, a large enough audience/enough utility to sell freemium services (e.g. Flickr), or effectively create a new market for new goods (e.g. Facebook’s virtual gifts). I don’t see enough exploration of this from news orgs.

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