The Folly of Paid Online News

In recent months, the drumbeat for some form of paid online news has become increasingly louder.

At first, it seemed to be just random comments, dismissed by those who heard them, but then a powerful voice joined the chorus, as Rupert Murdoch held forth that all of News Corp's newspapers would soon begin to charge for online access.

While Murdoch carries clout in the industry, we should remember that this is the same Rupert Murdoch who less than two years ago said he would likely make the Wall Street Journal free upon closing his acquisition of Dow Jones. He soon retreated from that position and now has reversed 180 degrees, suggesting we would soon see a day when consumers are paying for the New York Post.

Those comments may score strongly on the bluster scale, but the likelihood of the Post going fully paid is about the same as that of the Detroit Lions winning the Super Bowl this year (they were 0-16 last year for those who don’t follow American football).

Those who hope Murdoch’s words become reality cling to the examples set by the Wall Street Journal and the Financial Times. But, as this blog and others have long pointed out, those are two unique properties. They carry content that is uniquely required for the business and financial community and, for many, it’s a reimbursable business expense. Who do you know who gets their company to reimburse tabloid subscriptions?

The problem for most news sites is that there are too many substitutes available. Get rid of the Post and there’s still the Daily News and Newsday, Yahoo, Google News and dozens of other news aggregators.  If all newspapers were to shift to a paid model at once (which would require collusion), there might be a short time where there was a shortage of free news, but that void would quickly be filled by online media unencumbered by old models and cost structures. Any gains made by traditional newspapers would be fleeting.

The other model we’re seeing bandied about is the micro-payment model. This concept has been around since the early days of the Internet, but has never taken hold. And while many hold this up as the potential savior, it makes no sense to me. I don’t see consumers buying news content on a transactional basis, even if the individual purchases are insignificant.

Of course, there will be some sales, mostly to business users. But even if these small payments exceed current advertising revenues (doubtful, but with the weak current ad market, a possibility), is it worth giving up brand awareness and reach in return for a modest, short-term gain in revenue? Once a site puts its content behind the pay wall, for all intent it no longer exists on the Internet. Gone will be the links from blogs and social media sites. The content will no longer be part of the conversation. The New York Times receives 10% of its traffic from Twitter today. Those links go away when you move behind the pay wall.

The fundamental problem with all of these proposed models is that none of them are market-driven. No one is proposing a micropayment model because they believe that consumers wish to use micropayments for the consumption of news. These ideas are driven solely by newspapers, whose business models no longer work in today’s digital media environment.

The reality is that classified advertising is gone and display advertising is seriously depressed in the current environment.  Despite the cost-cutting efforts of the past few years, there’s no way that newspapers, in their present form, can cut enough costs to make up for those lost revenues. And that’s why, no matter what models are tested, the basic newspaper as we know it will never come back.

But the death of the newspaper should not equate to the death of journalism. What the news industry now faces is a challenge in how journalism will be paid for in this new era. It’s clear that there is a need and market for news content and investigative journalism. It’s also clear that something has to fund that journalism. What’s uncertain is what those funding mechanisms will be.

What seems apparent, however, is that if you are able to aggregate huge numbers of users who are engaged with a set of content, there will be models to fund it. Those dollars may not come from the consumers nor simply from traditional advertisers.  Instead, it may be a combination of sponsorship, lead generation, display advertising, ecommerce, mobile carriers and models that may not exist today.

For 100 years or more, news organizations were funded by a combination of (often overpriced and ineffective) classified ads plus inserts from department stores, auto dealers and other big local advertisers. That model doesn’t make a lot of sense, but in a world with limited channels to reach local users, newspapers were an attractive medium for advertisers. That world no longer exists and we’d be well served to all acknowledge that fact.

The printed newspaper model is increasingly becoming irrelevant. Newspapers no longer “break” news in print. Users learn about new events either through the Web or from television. And as users consume more and more content on mobile devices, the last value of printed newspapers – something to read on your commute – will soon be history.

Is there a potential paid model that could have consumers paying something? Perhaps. I’m sure that I would pay $10-20 per month for unfettered access to the New York Times on a combination of desktop and mobile devices. Would that same model work for local papers in smaller markets? I don’t know. But it suggests that the newspaper business of the future will be much smaller – lower revenues, a much lower cost structure (no longer supporting print), a narrower editorial focus and a much smaller mindshare and market share. At the same time, there will emerge numerous opportunities for alternative media to fill voids in editorial content by blending hyper-focused content with emerging business models.

It’s the death of newspapers, but journalism will survive.