What business models work online?

by Jason Preston on August 12, 2008

dollar signsBusiness on the internet is very different from business in the physical world. Shopping at Amazon is a separate experience from shopping at Barnes and Noble.

So why should newspapers and magazines expect to extend the same business model to a new environment?

The good news is that the bigger media organizations don’t have to figure it out themselves. A business model is a business model, and there are literally thousands of small, Venture Capital-funded internet companies that are searching for a strategy that works.

All that the Washington Post has to do is pay attention to what these startups discover. A number of companies have already found ways to run a profitable business online.

What’s the key thread in their solutions? Charge people money.

The Long Tail

You may have read Chirs Anderson’s latest opus in Wired, Free. Here’s where it’s misleading: “free” is only a reasonable price point if the cost of producing the good so low, it might as well be free to make. And for journalism, that is emphatically not true.

What has dropped to nearly zero is publishing. In other words, once the content has been produced, “putting it out there” has become really cheap. Unfortunately, “putting it out there” was never the bulk of the cost of running a newspaper.

But this is all academic now. The New York Times‘ failed TimesSelect initiative is proof enough that charging people for access to premium news online is not really a viable path. This business model is called freemium, and we can cross it off the list for content, although I’d keep it mind for other services.

What else have people discovered?

Fred Wilson, a prominent tech Venture Capitalist from New York, put together a list of online business models this past January based on what Chris Anderson put together in his research for the long tail.

There are a lot of good ideas on that list, and a lot of them would be well worth considering as ways for newspapers to make money, especially:

  • Streaming video advertising – Newspapers should look into doing more video work where it is appropriate. I know that historically the stats have not been there to support this, but (short) video is fast growing and unlike text, embedded video takes the ad roll with it.
  • API fees (you have an API, right?) – Building an API for companies that want to tap into your newspaper database would be a great business to business revenue solution, and it could be a great way to outsource development on new platforms (Kindle, iPhone, etc); let someone else pay you to put your content in more places.
  • Live Events (this is a big one) – We’re in the event business at the Parnassus Group, and I can tell you that there is no greater advantage for putting on an event than owning or partnering with a media vehicle. Get lots of people in one place. Charge sponsors. Make money. Ideal for newspapers.

Learn more about publishing business models by subscribing to the RSS feed, or by coming to The Pitch, a free Eat Sleep Publish event.

{ 3 trackbacks }

The ultimate guide to newspaper curmudgeon talking points — Eat Sleep Publish
08.13.08 at 10:20 am
Do you think free content is a viable path for independent content producers? — Eat Sleep Publish
08.20.08 at 8:38 am
Worth paying for — Eat Sleep Publish
01.02.09 at 11:54 am

{ 7 comments }

1 Paul Bradshaw 08.13.08 at 2:27 am

I’d agree with that analysis. I’d also make the point that the key online is to to provide platforms and tools that people want to use, rather than containers for content. Otherwise, most simply won’t get the numbers.

2 Jason Preston 08.13.08 at 5:39 pm

@Paul – to a certain extent I agree that creating a platform is a good idea, but only where it makes sense. Looking around at the tech/social media space it seems like being a “platform” is a bit in vogue and might be more of a trend than a solid business strategy.

If you’re in the content business (which every newspaper is in), I think it’s best not to stray too far from your core mission. Content is viable online, I just think we haven’t gotten there yet.

3 Paul Bradshaw 08.14.08 at 12:37 am

I think it’s in vogue for a good reason: advertising costs are reduced so much online that the only way to have a viable business model based on advertising is to create a place where very large numbers of people stick around. Content alone isn’t doing that for most newspapers, as that content is consumed on platforms elsewhere as people blog it, email it, twitter it, etc. So to keep them on your site you need to give them a service as well as the content – newspapers are ideally placed to use their content to think about related services: e.g. help me decide which politician shares my views; help me campaign against that plan you’re reporting on; help me speak to others on this issue.

4 josh-internet business 08.14.08 at 6:30 am

Yes, I am agree with you. If any body want to start the online business then e books,blogs are very helpful for them a lot. Advertising costs are also low comparative with the others like news paper and it will give the long term results.

5 Working Reporter 08.14.08 at 11:46 am

Jason:

I wandered over here from our conversation at Recovering Journalist. I think you have some good points here, but I disagree with your suggestion that charging directly for content can’t work.

TimesSelect didn’t fail — it just didn’t work as well as the Times wanted it to. It was making money when they shut it down.

I think part of the problem was that the Times chose to lock up its columnists. The Times has great opinion writers, but let’s face it, there’s a lot of free opinion out there on the Web. The stuff that actually was unique — the Times’s international and national news — remained free.

It’s interesting to note that the exceptions to the “free” rule are doing more or less OK. The WSJ dabbled with going free, but decided against it once Murdoch saw their profit statements. The Arkansas Democrat-Gazette isn’t free (see an interesting piece on that at http://www.ajr.org/Article.asp?id=4427), and while it’s recently experienced some pain from the overall economic slump, it has in general weathered the storm much better than other papers.

People like to call these things “exceptions” that somehow aren’t relevant to other newspapers. Why not? Yes, the WSJ can count on businesses buying subscriptions for its business reporting, but that doesn’t explain how its online audience grew to rival the total circulation of most newspapers. Sure, the Democrat-Gazette is a local daily with limited competition — but doesn’t that describe most newspapers?

I’d like to see newspapers try your ideas, but I’d also like them to try the enormously unpopular idea of actually selling what they make, either directly through online subscriptions or indirectly, perhaps by partnering up with a cable company and becoming a “premium channel” like HBO.

Seriously, could it make things any worse? Online revenue is on average less than 10 percent of newspapers’ income. If they lost all of that through experimenting with charging for content, it would make a terrible situation only 10 percent worse.

6 Jason Preston 08.14.08 at 12:07 pm

@Working reporter – thanks for checking out the site!

I think you and I are in more agreement on this than this post makes it seem, see my earlier post on subscription revenue.

The really tricky part in my mind is that, philosophically, locking up the news behind any kind of wall is bad for democracy. It’s a beautiful, beautiful thing than anyone in the world can get news from all over the world, for free, on their computer.

So newspapers need to make money for the service they provide, but they should try to do it in ways that don’t detract from the value that the internet brings to news.

In my mind this is the big dilemma.

7 Working Reporter 08.14.08 at 8:07 pm

“The really tricky part in my mind is that, philosophically, locking up the news behind any kind of wall is bad for democracy. ”

I concur. My fear is that, if individual newspapers don’t take firm steps now to regain control of the value of their content — in a way that minimally reduces the accessibility of that content — that many newspapers will fold or be absorbed into large conglomerations.

I have little doubt that if that happens, those surviving conglomerations will have little reluctance in taking steps against bloggers and aggregators that will make the RIAA look tame.

Comments on this entry are closed.