Walter Isaacson, former Managing Editor of Time Magazine, has penned a cover story for the latest edition titled How to Save Your Newspaper. It re-hashes some of the points that have been tossed around in the conversation at large for the last six months or more, but it’s worth reading because it presents them so damn eloquently.
It’s also worth reading because it really opens the conversation about finding a business solution for the news industry. Unfortunately, that’s where it stops. The solution that Isaacson offers is disappointingly vague and, I think, fatally flawed.
In my humble opinion, this is how you really save your newspaper.
After reading the article it’s clear to me that Isaacson and I are basically in line on our solutions for saving the news business (newspapers will hereafter be referred to as “newsbrands”): users must be charged money for access to the news.
Offering content for free over the Internet, as newsbrands have been doing for the past decade, raises a number of economic problems which are now becoming quite obvious. For one thing, it distorts the allegiance of the paper’s business model. As Isaacson puts it:
Henry Luce, a co-founder of TIME, disdained the notion of giveaway publications that relied solely on ad revenue. He called that formula “morally abhorrent” and also “economically self-defeating.” That was because he believed that good journalism required that a publication’s primary duty be to its readers, not to its advertisers. In an advertising-only revenue model, the incentive is perverse. It is also self-defeating, because eventually you will weaken your bond with your readers if you do not feel directly dependent on them for your revenue.
He leaves out the fourth leg: classified advertising (which is different from “advertising” in my book because the revenue comes from community individuals, rather than corporate entities), which of course does make money online, just not for newspapers.
But the concept is very important: when a newsbrand no longer relies on its readers for revenue, then they become entirely beholden to the advertisers who support their operation.
As an analogy, consider your bank. Who does your bank consider a “customer?” Hint: it’s not you.
How many times have you thought to yourself, as you wait in line during your lunch break, “why doesn’t this damn bank stay open late so that I can do my banking outside of business hours?”
Answer: you’re not their customer. For a bank, “customers” are other banks and businesses who take out large loans and repay them over time, plus interest. For all intents are purposes, this isn’t a big deal, except that it manifests itself in small ways, such as a bank’s hours of operation.
In the case of a newsbrand, I’d rather they “keep hours” that are convenient for me, and not their advertisers, even if that means I have to shell out for the privilege.
I can be like an infant banging a spoon when it comes to charging money for content. It’s right there on my about page: “good content is worth good money.”
There are a lot of arguments for why people will never pay for things online, and I’ve heard them all. At the moment, though, they are all academic: newsbrands are at a point where they need to start introducing pay structures to their content, or they will go out of business.
It’s possible, even likely, that in time the advertising market and targeting technologies will be in place to completely support an online-only newsbrand. But that’s still a one-legged stool, and it’s only half-built at the moment.
The most public failure of a paid-online system is probably TimesSelect from the New York Times. The failure of TimesSelect, or any other pay-for-news program in the past, does not preclude a pay-for-news model working now or in the future.
I’ll say that again because it’s important: past failure does not make it impossible to succeed in the future. Was Columbus the first person to sail West? (No.)
Businesses live or die based on market conditions, which encompasses an almost immeasurable number of variables: What is the target audience? What does the global economy look like? Which company is trying to charge money? How do people feel about the concept? How many other players are there in the space?
I could go on, but the point is this: circumstances have changed significantly from the last time a significant newsbrand tried to charge for online content. The future of newsbrands is a hot topic right now on the national stage. The Internet has become a more mature platform, with ever-more sophisticated technologies enabling ever-more-impressive ways to practice journalism.
And perhaps most convincing of all, people are already throwing out money right and left for subscription-based online services that wouldn’t have many a cent in 2002. FlickR, Evernote, SmugMug, Teaching Sells, Blog Mastermind, Feedburner, Remember The Milk, Box.net, StatCounter, and so on. If they’ll pay for statistics on their web sites (available for free through Google Analytics), then why won’t they pay for news?
We’ve wandered from Isaacson and his article in TIME magazine, but here I have to come back to it because Isaacson has unfortunately jumped to the conclusion that a micropayment system will solve the revenue problems facing newsbrands today. On this point, I totally disagree.
I’ve sent an interview request to TIME, hoping to ask Isaacson a few questions, but I haven’t yet heard any response.
It’s also been pointed out to me that I have my own bias against micropayment systems; it’s true – I have an emotional hatred of systems that are designed to nickel-and-dime me. I avoid toll roads at all costs, I do not have “overdraft protection” on my bank accounts, and I refuse to buy things on Xbox Live for ridiculous, unconvertible currency called “Microsoft Points.” So that’s my bias, but it doesn’t mean that I’m wrong.
Smarter people than me (I’m looking at you, Clay Shirky) have already done a fantastic job of debunking the idea behind micropayments, and I encourage you to read his article if I am unable to convince you here.
But first, let’s hear Isaacson explain why he likes the idea of micropayments from newspapers. I don’t want to be accused of mis-representing his arguments, so this is a big lift:
The key to attracting online revenue, I think, is to come up with an iTunes-easy method of micropayment. We need something like digital coins or an E-ZPass digital wallet — a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.
Admittedly, the Internet is littered with failed micropayment companies. If you remember Flooz, Beenz, CyberCash, Bitpass, Peppercoin and DigiCash, it’s probably because you lost money investing in them. Many tracts and blog entries have been written about how the concept can’t work because of bad tech or mental transaction costs.
But things have changed. “With newspapers entering bankruptcy even as their audience grows, the threat is not just to the companies that own them, but also to the news itself,” wrote the savvy New York Times columnist David Carr last month in a column endorsing the idea of paid content. This creates a necessity that ought to be the mother of invention. In addition, our two most creative digital innovators have shown that a pay-per-drink model can work when it’s made easy enough: Steve Jobs got music consumers (of all people) comfortable with the concept of paying 99 cents for a tune instead of Napsterizing an entire industry, and Jeff Bezos with his Kindle showed that consumers would buy electronic versions of books, magazines and newspapers if purchases could be done simply.
There are two levels of objection to the micropayment system: practical, and philosophical. Because the philosophical objections are really a personal issue for everyone individually, I’m not going to dwell on them; either you’re the type of person who won’t be bothered by making a purchase decision every time you click a link, or you are.
I am the latter, and I believe that so are most people – yes, iTunes lets people buy songs, but those are fundamentally different from newsbrand articles. For example, that song is still valuable to me in a week.
The practical objections are, I think, sufficient to explain why a micropayment approach to news is doomed to failure.
First, a system must be designed that would allow any Internet user to easily purchase an article from any individual news source that chooses to charge for content. It would be a tough sell for any one newspaper to put their financial fate in the hands of another paper, or even a third party tool. And of course to be useful, it would have to be consistent across 90-95% of paid online news sources, and it’s mind-boggling to think that any one system could achieve that level of adoption.
In addition, designing a tool (would it be a browser plug-in? what if the user likes a browser that’s not supported?) that would be simple enough and ubiquitous enough is a very difficult task.
Third, how do you value the content? It’s a much more complex problem that it seems. Why is this article worth half a cent when this one is worth five? Is it based on length? Popularity? What about the photo gallery? How much is this photo of the wreck worth? How much do people pay to see this shot of the Space Needle? What about user-submitted photos? Are they free? Do they get a cut of the revenue? How much do they get? What if a similar picture is available on FlickR for free?
Fourth, and most importantly, the market will not support a micropayment system of content if there is a free option available. If all newsbrands somehow decided to flip the switch at the same time and charge for news, then I guarantee several entrepreneurs would immediately begin a free newsbrand. If that news is high quality and available to everyone for free, then the vast majority of news consumers will flock to the free site as opposed to paying for content.
Result: one thriving paper that makes tons of money from advertising, because they have such a large and captive audience, and thousands of newsbrands go out of business because not enough people will pay 5 cents to read their work.
Or: all other newsbrands revert to free content in order to compete with the free newsbrand, and there is not enough advertising money to support the entire ecosystem; again, newsbrands fail.
With a micropayment system as a solution, the pendulum swings completely from one unsustainable side to another. There is no middle ground.
The solution: Metered content
Using a metered content system neatly sidesteps most, if not all, of the practical problems presented above. I’ve written about the system in the past, but here’s the concept in a nutshell:
A newsbrand would offer a certain amount of content for free (let’s say 25 articles per month) to everyone on the Internet.
That same newsbrand would then offer a premium subscription option that would lift the article limit imposed by default and offer access to additional “advanced” news content like interactive graphical elements, HD-video streams, and access to certain database services.
In essence, metered content is the newsbrand equivalent of freemium, which is the business model already working behind all of those subscription sites I listed earlier. Just think: according to Comscore, FlickR has 26 million members, and although Yahoo! won’t say how many of those members are paying members, it was already profitable when Yahoo! bought the company.
Offer some content to all users for free, and charge money for full access – mentally, it’s proven that people are already ok with this.
There’s also a perverse little point of economics in favor of this strategy: any club that is sufficiently exclusive becomes more attractive to those who are not members. Creating a “top tier” of reader is a great way to get people to drop a little cash, just so they can be in the know.
Most of the people who signed up for TimesSelect probably felt a little bit of this draw. It’s not enough to drive the service, of course, but it’s certainly a helpful psychological boost. No such “club” exists for the micropayment model.
The most difficult part of determining the metered system is going to be figuring out where to draw the paid content line. It’s probably going to be different for every newsbrand, and they’ll have to crunch the numbers themselves.
Most likely the user data is going to form a kind of power curve, and it’s a matter of placing that wall somewhere near the head of the curve, where your most likely paying market exists. I wrote a post about that process already, but in the end it’s going to be a choice that’s different for each company.
This is not a magic bullet. It still requires that newsbrands sell their content and convince people that the journalism they produce is worth paying money to support. But think about how this system works on so many levels:
- It allows people to continue collecting news form multiple news sources all over the world without the burden of mental transaction costs. In fact every free article becomes a chance for a newsbrand to advertise their paid product.
- It doesn’t stifle blog conversations by putting content behind an immediate pay wall (how many people would avoid clicking a link in a blog post to read the original article if it meant paying just a small amount of money?). I also believe that the conversations people have in reaction to the news are almost as valuable as the news article itself.
- It allows newsbrands to charge people for their content while still remaining competitive with free news operations.
- It does not require that all newsbrands act in concert, or that users rely on any particular software or universal payment system.
- It lets newsbrands continue to put equity into their own brand, instead of having to value individual articles. Micropayments insist that you charge on an individual basis (Maureen Dowd is worth THIS, David Horsey is worth THAT, and investigative reports are rarely read, so…), whereas subscription-based models allow a business to put a value on their masthead, which from a business standpoint is a much better investment.
Running the numbers
Ultimately, the only way to find the solution is experiment with the options available, and run the numbers. As much as I hate to admit it, I’ve been wrong about things before, and it’s possible that I’m wrong about this.
I’d love nothing more than to see major newsbrands start to experiment with user-paid content solutions online. We may find out that getting people to pay for content is harder than I expect it will be, but then at least we will have tried, instead of just watching in shock as the number of journalistic institutions in the world plummets to dangerously low numbers.
I hope the New York Times, or the Seattle P-I, or the Seattle Times, is willing to give metered content a shot. When they do, I’ll be the first to sign up.
Incidentally, someone already asked me how newspapers would protect their for-pay database services from external competition like Everyblock, and the answer I think is here: provide the API and the data to those third party developers. Clever!
If that doesn’t make you want to sign up for my RSS feed, then I give up because it’s hopeless.