Online Pay-wall

There was a time in the quite recent past – within the last 15 years – when Hong Kong's South China Morning Post was the richest newspaper on the planet, with profit margins over 50 percent. The paper had a distinct edge on China reporting and analysis in the 1980s and early 1990s when there was feverish interest in economic opportunities there. The SCMP could market China information to businessmen, banks, embassies and pay-wall their website for insightful China reporting.

That edge is gone. The paper itself has just declared its first loss along with the erosion of its classifieds franchise, an indication that the Internet predator has broken free from the United States and Europe and is beginning its depredations in Asia. And, as everywhere, publishers are seeking to determine how to bend the Web to their needs.

Globally, two papers have seemingly made a success of it. One is Rupert Murdoch, who after his US$5.6 billion takeover of the Wall Street Journal in August 2007, first said he would convert the Journal's website from paid to free. Addressing shareholders in November 2007, Murdoch declared that "We are studying it. We expect to make it free. Instead of having 1 million, have at least 10-15 million in every corner of the earth."

Thus it was all the more startling then to hear Murdoch two years later rally the industry to clamp pay-walls around newspaper content. Journal executives convinced Murdoch of the high value in subscriptions from the paper's 1 million paying audience and almost inelastic subscription renewals.

The Financial Times likewise has 121,000 paying online subscribers who also opt for various premium services, which are estimated to contribute about US$45 million annually in direct reader revenue. Both the Financial Times and Wall Street Journal have raised their print and online subscription fees at a time when the rest of the western industry reels from circulation and ad revenue declines following the global financial crisis.

For the first time in its history, the Financial Times' subscription and other reader revenues exceeded its advertising income. In 2009 digital and other reader revenues constituted two-thirds of Financial Times Group earnings. Advertising contributed about 25 percent of revenues.

Murdoch's ire was directed at Google and other 'news aggregators' who make millions serving free news daily and trawling contextual advertising through search engines.

"Quality journalism is not cheap. An industry that gives away its content is simply cannibalizing its ability to produce good reporting," Murdoch thundered with all the fervor of the newly converted. "The digital revolution ….has not made content free. We intend to charge for all our news websites."

His executives characterize these portals as 'news thieves'. They are determined to deny them the fruits of cyber-thieves. That roused a dispirited newspaper industry momentarily from despondency. Many pin their hopes on Murdoch's legendary ability to fight wars others would shun. He made a point of opening talks with Microsoft for collaboration with the Bing search engine. It was a move to scare Google. He wants portals to pay for the privilege of access to news content.

Les Hinton, appointed CEO and Publisher of the Wall Street Journal by Murdoch, carried the pay-wall call to the World Newspapers Advertising Conference, in Hyderabad last November. He hinted that Wall Street Journal investments in India would focus on its digital assets.

But pay-walls are irrelevant for 99.9 percent of news sites. Here's why:

The economic value of any good is determined by its scarcity. Online generic news content is characterized by its sheer abundance and ubiquity. The economic logic for pricing generic online news and advertising is absent. There is no financial, regulatory or licensing barrier to entry. Websites, blogs and RSS feeds are mushrooming exponentially.

Only monstrous eyeball statistics get noticed by advertisers. Only the dominant category leader matters. There is little commercial value for the small and medium news traffic sites. If anything, the tendency is toward diminishing online value through ubiquity of news content and excess advertising inventory.

The consumer and advertiser can window-shop for news sites because the hapless vendors have no mechanism to control supply. Quality porn, stock tips, dating, online gambling and culturally exclusive sites enjoy degrees of scarcity and commercial value. Implicit in Murdoch's call to pay-wall, is the assumption that the industry can and will close down the supply of free news to the portals. That is self-defeating for many newspaper brands which have been able to reach wider audiences beyond their physical geography and normative web traffic, through portals serving search queries.

The traffic beyond geographic borders accounts for a large percentage of newspaper website audiences without which their meager online earnings would shrink yet further. For the vast majority of newspapers, already suffering stagnation and decline in print revenues, opting out of enlarged web traffic is a road to nowhere – especially when they see digital advertising galloping at double-digit growth annually across the globe.

As Jack Shafer, journalism critic of Slate Magazine pointed out on the New York Times' recent announcement to shift to a pay model, it will be "a waste of the gargantuan audience they've attracted." Other commentators suspect it is a disguised NYT move to protect its print subscriptions.

Newspapers thrived behind high entry barriers

Printed newspapers require a heavy production infrastructure, presenting a natural barrier to entry. The survival principle balances the size of populations to the sustenance available to support them. We see that effect everywhere: two to three newspapers per metro city and sole community papers elsewhere.

The traditional newspaper market landscape is a limited contest within a roped ring. There was no unchecked proliferation of supply. The market was largely self-correcting for the players. Newspaper oligopolies could command economic rates for their product from consumers and advertisers. The double-digit profit margins of the newspaper business were the envy of all (until the Internet disruption).

Newspapers essentially milked 'situational monopolies'. It needed captains asleep at the wheel to crash and burn. (There is no shortage of those.)

An audience that trades on timely information

What is missed about the Financial Times and Wall Street Journal examples of profitable online subscriptions is their value for financial traders. Their high subscription fees are largely funded by companies and renewed annually as routine. They are essential 24/7 feeds for stock brokers, banks, fund managers, investors and traders. These papers equip punters and institutions with market movements online together with news, commentary and analyses which clue them into opportunities and risks.

Asymmetry of information is the profit window for traders in money, commodity, stock and futures markets. Those who have it before the rest of the market, cream off the loot.

Without such compelling information on which huge financial trades are executed, newspapers tempted to erect pay-walls for generic news content should beware.

Unless a newspaper has unique access to scarce information that has value, an Online pay-wall will be yet another nail on the coffin.

A newspaper cartel denying access to Google & Yahoo?

Like all other previous calls for coordinated action – on newsprint prices, cover prices and Ad discounting, the industry does not have a track record for productive collaboration. If an access-block is attempted, what is more likely to happen is some energetic competitor declaring free access as his competitive advantage. "Beggar thy neighbor" is the predatory credo that newspapers live by. So we can skip denial of news access to portals as a likely industry response.

There are many degrees of pay-walls: limited open access, then registration access, followed by several paid access options. A total access block serves no purpose.

If web revenues cannot compensate for print decline, what then?

The Internet revolution has disrupted producer-consumer-advertiser relationships.

It has liberated consumers from the stale 24-hour cycle of newspapers and created excess website inventory chasing limited advertising budgets. It has also removed general news as the core value of newspapers. Publishers and editors have lost their position as arbiters of what the public should or should not know. Citizens can seek – and find, whatever they wish to know at any time.

Mainstream media has already lost much credibility across the globe as editors downplayed or ignored scandals involving their patrons in government and business – only to have the seamy details exposed on blogs and spread virally in cyberspace.

That is what disruptive technologies do: they disrupt totally.

In the US the average cost-per-thousand (cpm) for news website banners stands at US$1 while the equivalent print cpm is US$20. Ad revenue from websites contributes about 8 percent of advertising earnings for a typical newspaper. Much of the digital advertising being invested globally by-passes newspaper websites. The portals vacuum almost 80 percent of website advertising. There is no chance of the old business model being rescued. It is in terminal decline. Double-digit profit margins and advertising yields will erode steadily to the mat.

As China and India race along on growth trajectories, educational and infrastructure investment will accelerate, enabling digital access beyond metros. Will these new consumers necessarily forsake press for digital alternatives? Will they disconnect entirely from the political process, as the young seem to be doing in the developed world?

There is still much societal respect for the printed newspaper – and grudging wariness for the press among politicians. The role of the printed newspaper as a reliable record of a society's history still remains strong in the developing world. Newspapers will fade only when they become commercially unsustainable. That shadow is already upon them.

Back to roots: the newspaper as community voice & conscience

Newspapers lost their bearings as voices of their community when they drifted into the stupor of becoming obsessive conduits for paid advertising. Like junkies everywhere they got their daily fix on easy injections and zonked out. When they grew fat they became even more divorced from their audiences. The mantra of 'shareholder returns' had their heads pointed the wrong way.

Editorial space became fair game for intrusive advertising – not because it served readers but so higher premiums could be charged. Annoying loyal readers became yet another clever marketing strategy. The farce continues.

The reader became a statistic and the advertiser a cow to milk. Newspapers lost their soul as they drowned in money. They thrived in metropolitan areas where affluent consumers and plump ad budgets resided. Then came the disruption. Both readers and advertisers delight in exercising their new found freedom not to be dependent on mainstream press.

The road back is where salvation lies for printed newspapers. Newspapers have to re-connect through engagement, disclosure and advocacy which matters to peoples' lives.

Re-inventing the business: If not now, when?

Define the Service Mission. Incubate Community Start-Ups

Forget the hollow, banal cliché of "to inform, educate and entertain".

That is the surest way to detect an ivory tower with no practical mission at all. Rediscover service to community. Be useful to real people. Solve problems. Keep politicians and bureaucrats honest. Protect the powerless from the powerful. Be a champion for social justice. Be relevant. Be available. Be there.

The content creators and brand connectors will remain at the core of the re-defined business. Choose locales to re-learn service to community and build honest value. Roll out small community operations into a network that adds value not cost.

Shed the Baggage. Small is Beautiful

All the deadweight corporate overhead of HR & PR paper-shufflers will have to go.

The grunt work of accounting and payroll administration can be outsourced. Ragtag in-house IT Departments struggling to adapt obsolete infrastructure and software to cope with run-away consumer cyber-dynamics are pointless.

Engage specialist IT service companies who can connect Media domain knowledge with best-of-breed software and multimedia platforms. Let it be their business to keep abreast of technology, innovate, integrate, enhance consumer engagement and enable cyber-commerce. Cloud computing is fast becoming a reality. Leverage it.

The 'software as a service' model is particularly apt for the newspaper industry. Digital technology and cyberspace behavior is changing too fast for in-house staffers, weighed down by annual budgets and bureaucracy, to ever cope. To continue this losing proposition will be the height of folly for the newspaper industry. Newspapers are already sleep-walking in the 'Stone Age' zone of digital technology.

Where press capacity is available, multiple publishers can pool resources to optimize presses and plants without duplication of expensive hardware. The survival imperative has forced this on the industry in the UK, Europe and the US – getting over the initial publisher paranoia about their headlines being stolen.

That will remove crippling depreciation and interest charges from the P&L, releasing cash for operations. Survival depends on productive sharing of costly facilities. Content security is easily implemented through independent third party contracts and direct technical workflows. Print centers can be stand-alone service businesses.

Distribution is another messy area of inefficiency and duplication. Distribution can be pooled and outsourced to competent logistics companies which can deliver cost and time efficiencies to all the players. Logistics managers who distribute soft drinks and cigarettes nationally are naturals for consolidated newspaper delivery.

The YAYSAT model in Turkey is a very relevant case study for the 'un-organized' newspaper logistics and distribution sector in developing economies.

Newspapers should focus on content, engagement and service, not technology or logistics.

Serve the Community. Become 'The Source'

Content relevance, brand connection and community engagement are where the battles for audience would be won. Recognized beat reporters with access to school teachers, local government officials, village headmen and religious leaders will keep the pulse. Identification with the needs of the community is paramount.

As 'The Source' community press will be a combination of business directory, jobs listing, town crier, archive and social networking, energized by news and commentary.

It does not have to invent and own everything itself. It can easily be the hub facilitator hosting content and links, enabling small voices to be heard on-line and off-line.

Scale up Service. Drop Corporate Mindsets

The mistakes made by newspaper chains which gobbled community papers across the USA and dumped content from central into their pages, robbing communities of local relevance and service, must be remembered. The bean-counters at HQ disconnected these newspapers from the communities they were supposed to serve.

Each community must view the local media hub as its own. While news will be the daily energizer, local media will have to organize much non-news content of relevance on everything about and for that community – in all available channels.

A digital hub enables many segments of a community to be served equally well. Digital infrastructure will come sooner to smaller towns than publishers imagine. Service journalism will be the driving logic of the re-invented publishing entity. The editor will be a trusted and respected voice connected to the community – not some distant and inaccessible demigod in the state capital.

Why can't a metro newspaper apply these principles to its city franchise and generate new relevance at the district level with targeted sections or weekly newspapers? That will work only if the driving motive is service – not multiplication of advertising conduits. Sustainability will follow community value. Put the horse before the cart. Citizens will respond to service that makes a difference to their lives.

The bloated headcount, silo divisions and disconnected hierarchies of metro newspapers make it difficult for them to think and act local. They are, sadly, misfits for the community challenge. The man from HQ is the wrong starting point. Done well, hyper-local facilitation can re-create the connection to community which can make press relevant in the Cyber Age.

A slightly different version of this appeared in RIND, the magazine of the Research Institute for Newspaper Development, based in Chennai