The power of five dollars

by Jason Preston on August 9, 2008

Part three in a three part series on the changing economics of the newspaper business. Part one is here.

Lemonade stands work on a pretty simple principle: if you spend $5 on the raw materials to make 10 cups of lemonade (sugar, 6 lemons), and then you sell each cup for $1, you make $5 in profit.

This is, in fact, the logic behind all kinds of commodity businesses. Buy in bulk, resell individually. Restaurants work because they can buy food at bulk prices, and then sell them to customers at individual prices.

News is now a commodity business.

This means that newspapers need to start seeing themselves as resellers, leveraging their scale to make a profit instead of their former monopoly.

Keeping it cheap with new technology

Subway employees are taught how many slices (or scoops) of meat go on each sandwich. It’s a precise formula because Subway needs to keep its costs down if they’re going to turn a profit on cheap sandwiches.

Similarly, newspapers need to keep their costs down if they’re going to turn a profit on their articles. Many papers already know this of course, but the problem is that they’re trying to cut costs in the one place that they absolutely, 100%, cannot afford to be stingy: humans.

The people that newspapers have on staff in the next five years will determine the fate of their organizations. Either they will be well paid, enthusiastic explorers, or they will be grumpy, underpaid deadweight. Guess which group will survive.

Costs can, and should, be cut on technology, not on human resources. Many open source solutions have active and reliable support communities, plus a host of independent companies who will gladly charge for their expertise. Running a site on the LAMP stack is nowhere near as risky as Microsoft would want you to believe.

Use new tools like Wikis to facilitate internal communication. Spend the time and energy to develop corporate social networks where reporters across different cities can share resources, tips, encouragement, advice, or quotes.

Use VOIP technology to get rid of your old telephone system while increasing functionality.

All of these technologies share one thing: they require an initial investment, but will increase productivity and, through each tiny transaction, help the bottom line.

Volume

The great irony is that now, finally, newspapers have the ability to publish virtually anything, of any length, for essentially nothing—and it’s killing them because everyone else can do it, too.

Actually, that’s not entirely correct. It’s killing them because they don’t know how to use all that new space.

Controlling costs through technology is all well and good, but where does the revenue come from? If advertising online is truly a volume business, where does the volume come from?

To answer that question, you need to understand what’s happening to photography.

iStockPhoto.com accepts photo submissions from amateur photographers around the world, and by doing so, puts independent professional photographers out of business.

It used to be that ad executives had little choice but to hire a professional photographer to get the imagery they needed for their advertisements. Photographers had a monopoly on the custom pictures market.

Digital photography changed all of that. Suddenly millions of people could take millions of high-quality pictures, review them on-site, re-take them, delete them, photoshop them, and publish them to the internet, all without spending a dime. Amateur photography took off.

The logic behind iStockPhoto, of course, is that millions of people taking millions of photos will produce, on average, a few really good shots per day.

Jane Anybody doesn’t have much chance of selling her photography on her own, but if she takes just one really good shot, she can upload it to a photo reselling site and, every now and then, make a couple bucks.

Flip it around and look at it from the other side: Finding the right imagery for your ad, or presentation, or even your blog post can be as simple as browsing through an online image directory, and putting $5 on your credit card.

The power of five dollars

Your audience is your best resource for volume content. The trick is to bloat your servers (and therefore your ad space) without diluting the quality work that makes your brand.

In other words, you can’t simply have a big section of user-generated content on your site; you will confuse your audience and, ultimately, kill your authority.

How do you avoid this trap? First, keep your staff writers, clearly, since they provide the professional and consistent anchor content that has put you where you are already. Second, you have to clearly distinguish between “content we think is worth reading” and “content that’s just here, on our site.”

The best way to do this is to go ahead buy the content that’s worth having—for five dollars. This is a one-time cost for a theoretically endless stream of revenue.

If you pay $5 for a good user article, and it generates 20,000 pageviews the first year, and then 10,000 the next, and then a steady 5,000 thereafter…how long will it take you to recoup your cost? Far less than a year. After that it’s all profit—forever.

There’s one other bit of good news, too. Offering cash for good content will draw all sorts of contributors out of the woodwork. Whatever user generated content you have now is completely voluntary, which means you have only a tiny, well-motivated slice of your readership contributing to your site.

As iStockPhoto has shown, giving the average reader an opportunity to make a few bucks (and maybe get some recognition) from their work can be a powerful incentive for people to send in their work.

Monetize

The final trick to making the internet work as a publishing platform is still a work in progress. Put simply, you need to serve ads alongside your articles in every medium that you can.

There are so many ways that people are already able to interface with the web already, and those contact points are only going to increase in number.

It’s important for a news brand to be available in as many places as possible—the idea of forcing users into one medium is not a tenable business strategy. TiVo teaches us that people don’t even want watch television anymore if it’s not on their schedule.

So the lesson is simple: make your content available in as many formats as possible, and always serve ads alongside it. Here are some places where I think newspapers will be able to make significant revenue from ads going forward:

  • Mobile phones – newspapers should have custom interfaces on the iPhone, Android, and Windows Mobile.
  • Printer friendly format – often this format strips away most of the ads, but it doesn’t have to.
  • RSS – stop trying to funnel readers back to your web site. RSS supports advertising formats, and the extra good news is that splogs regurgitating your feeds will faithfully reproduce your ads as well.
  • Interactive graphics – these new tools, made possible by the internet, are both powerful and popular additions to the newspaper arsenal. They should be widgetized and they should carry ads with them wherever they are embedded.

To learn more about the future of publishing, sign up to attend The Pitch this September, a round table discussing the new business model for a print daily.

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{ 3 comments }

1 Christopher Robin 08.11.08 at 1:30 pm

I love how you made the transition from lemoneade stand to News. What i like the most is that it works and it’s true!

2 david 08.20.08 at 11:21 pm

As someone who is about to enter the world of online journalism, this article is very interesting.

And awesome blog, by the way — added to my Bloglines — exactly the kind of stuff that I am trying to learn ASAP!

3 Jason Preston 08.21.08 at 8:31 am

@David – thanks! I hope you continue to like it.

I think that journalism is a great space to be starting a career right now, contrary to the common wisdom.

It’s entrepreneur space, and once the bigger companies come around to the new model, there are going to be plenty of opportunities going forward for people who prove that they understand the internet as a platform now.

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