by Luke Jones
Posted 9/16/2013 12:00 am
Updated 3 months ago
Print publications that traditionally relied on advertising for the bulk of their revenue have watched that money stream slowly dry up even as the demand for news — more often and in more formats — has grown. Newspapers are now asking, “Who will pay the cost of news if advertisers won’t?”
And because you are reading this news story, the answer is fast becoming: You.
Evidence of this trend is everywhere.
- In 2012, the year after the New York Times adopted a “metered pay” model for its digital versions, its consumer revenue surpassed its advertising revenue for the first time.
- The Arkansas Democrat-Gazette, an early adopter of the “pay wall” model that requires online readers to subscribe, further shifted the burden to readers last year when it increased the price of a print subscription by 75 percent.
- The Arkansas Times, which remains a free weekly print product, on Aug. 1 imposed a metered pay model for its popular online blogs.
- Halifax Media Group of Daytona Beach, Fla., controlled by Little Rock financier Warren Stephens, is in the process of converting its 20 daily newspapers to online pay models.
- Arkansas Business Publishing Group, owner of this publication, is studying online pay models as changing reader habits that hurt general audience newspapers early on have finally begun to nip at the niche publishing industry.
“Content creation is a very expensive endeavor,” Mitch Bettis, publisher of Arkansas Business said. “So there is no question: We consumers are going to be paying directly for that more in the future.
“I think most media and most content providers recognize that we made a mistake when we bought into the premise that Internet equals free. Our content is way too valuable to give away if we are creating something that is distinctive, unique and specialized.”
The Business Plan
Advertising and newspaper readers have always had a symbiotic relationship, with advertisers subsidizing the cost of a product that could attract potential customers.
“The industry has typically had a ratio of 80 percent advertising revenue to 20 percent circulation revenue,” said Nat Lea, vice president and general manager for the Democrat-Gazette. “The reason for this was that each subscriber was valuable to publishers because they could sell circulation to advertisers. Advertising revenues allowed publishers to keep subscription prices artificially low.
“We see the industry looking in the next few years — in light of the increased use of pay walls, decreasing advertising revenue and increasing subscription pricing trends — to reach a ratio of 60 percent advertising revenue to 40 percent subscription revenue.”
The Newspaper Association of America reported that ad revenue for the industry as a whole in 2012 was $22 billion. That number sounds huge, but according to Rick Edwards, a media business analyst for Poynter Institute, a journalism think-tank in St. Petersburg, Fla., it’s less than half as huge as it was in the mid-2000s.
The same trend line isn’t true for dollars coming from readers. The dollar amount is much smaller — $10 billion in 2012 — but much more consistent, Edwards said.
“Circulation revenue has held much more steady than advertising has,” Edwards said. “It has been going down slowly for the last several years, and of course the numbers have gone down steadily over a longer period of time. But that trend reversed in 2012.”
In 2011, print advertising made up 49 percent of all industry revenue. Digital ads accounted for 10 percent. Circulation made up 26 percent.
The next year, print ads were down to 46 percent, digital up to 11 percent and circulation up to 27 percent. It wasn’t a huge increase, but it’s indicative of an emergent trend.
Mark Thompson, CEO of The New York Times Co. gave a speech earlier this month at the University of Oxford in England in which he discussed the future of the company’s revenue streams. He said revenue from the Times’ classified job ads section had plummeted from $204 million in 2000 to $13 million in 2012.
Thompson also pointed out that even though digital advertising has followed readers to online content, the revenue from those ads is drastically lower than in print.
“If you are competing with general display advertising, you will find that even a hundred million unique browsers a month, an amazing achievement in terms of reach and user-impact, converts into surprisingly few dollars or pounds,” Thompson said. “The structure of the market means that that is unlikely to change.”
That doesn’t mean the Times is out of digital advertising, Thompson added. Growth, he said, simply can no longer come from advertising alone.
Thompson said circulation revenue at the Times is now about $800 million, more than half the company’s annual revenue.
“Indeed the New York Times today has the highest paid circulation in its 160-year history with close to 2 million paying subscribers to physical and digital copies,” he said.
Climbing the Pay Wall
Pay walls are digital barriers that limit access to online content to readers who have paid for a subscription that might or might not include a newspaper’s printed product. This is the model used by the Democrat-Gazette on its primary website, ArkansasOnline.com.
Metered systems, such as the New York Times and the Arkansas Times blogs have adopted, allow casual users to read a set number of online articles per month. Readers who keep returning for more are asked to pay for content — $10 a month at the Arkansas Times, up to $35 a month for the NYT — that their own habits indicate is valuable or important to them.
Charging for online content, according to the Poynter Institute’s Edwards, is simply the next logical step for newspapers to rebalance revenue and costs.
“Historically, newspapers were very, very cheap,” Edwards said. “Fifteen years ago, the Washington Post cost a quarter or so. But as time went on, as advertising faded and continues to fade, papers said ‘We need to get more out of the consumers.’”
Prices increased through most of the last decade, he said.
“At the same time, they were looking for ways to economize,” he said. This included cutting off circulation to remote locations and bumping up subscription prices.
“In the most recent phase, pay walls have come in,” he said. “The New York Times, Gannett and lots of others sort of figured out what works with metered and pay wall and offering print plus digital combinations.”
But not every model is best for every product or market.
“People are looking at a host of models,” said Mitch Bettis, publisher of Arkansas Business. “There’s the obvious models of a hard pay wall or a meter, those are the two most prevalent models out there.”
The Democrat-Gazette was a pioneer of the pay wall at a time when most news organizations, including Arkansas Business Publishing Group, were beginning to give away more and more news content online with the expectation that advertising dollars, not just advertising, would follow readers.
According to Lea, the D-G’s pay wall was announced in September 2001 and implemented the next month. “It was originally developed from scratch,” he said. “We moved to a content management system called Ellington in 2006 and we developed custom code to allow it to authenticate users as subscribers in our circulation management system.”
In 2001, all the Democrat-Gazette’s digital content was behind the wall. But over the years, Lea said, the newspaper developed the ability to protect individual stories and sections, leaving select content open to non-subscribers.
“As a result, we now have a large amount of information on the site that is not generated by our newsroom or published in the paper that is available to all visitors of our website,” Lea said.
The Democrat-Gazette’s early adoption of pay wall technology has been successful for the paper, and success has not gone unnoticed. Earlier this year, business titan Warren Buffett wrote to investors of his holding company, Berkshire Hathaway Inc., that the Democrat-Gazette is the “main exemplar” for local newspapers.
He said Publisher Walter Hussman “adopted a pay format early, and over the past decade his paper has retained its circulation far better than any other large paper in the country.”
As ad revenue keeps eroding, more and more newspaper publishers have followed Hussman’s lead.
Noel Strauss, managing director at Stephens Capital Partners, said Stephens-owned Halifax Media is about 80 percent finished with its rollout of a paid model for all its daily papers.
Arkansas Times Publisher Alan Leveritt said that, six weeks in, he’s pleased with the results of the new meter for the Times’ blogs. “It’s been really good, and we’re really happy with it,” he said. “Our ultimate goal is to pick up a thousand subscriptions.”
Leveritt said the blog had almost 600 as of last week, and it was growing by five to 10 per day. He said he hopes to hit the 1,000 mark by the year’s end.
“It’s a tough market,” he said. “It’s a tough time to be in the publishing business.”
But the online subscription — 1,000 of them equates to $120,000 a year — can’t replace ad revenue, Leveritt said.
“We do really well with our online advertising. And ever since we started charging, our unique visitors are up. The first full month we had a metered pay wall, it went from 210,000 to 234,000 unique visitors,” he said. “I don’t know if there is a perception that it’s worth more, but of course the Mayflower reporting probably helped,” he said, referring to articles on the oil spill that the Times has published in partnership with Pulitzer Prize-winning InsideClimate News.
Leveritt noted there aren’t any plans for adding meters to any of the Arkansas Times’ other online products. And the print edition will remain free.
Bettis said Arkansas Business is evaluating several options for a pay model for the paper’s online component, but at the moment print subscription prices — $64.95 per year — aren’t slated to change.
The Democrat-Gazette, despite its early adoption of the pay wall, has also had to ask consumers to shoulder more of the cost. In June 2012, the price for seven-day-a-week delivery increased from $16 to $28 per month.
The 75 percent increase came with a predictable loss of subscribers: In May 2012, the Alliance for Audited Media reported an average daily circulation of 179,258 for the Democrat-Gazette. In May of this year, it was down almost 12 percent to 158,090.
“We’re really seeing about the losses that we expected,” Lea said. “But we feel good about what has happened with our subscribers. The vast, vast, majority of subscribers have said that the news product we produce is worth it.”
Which leads to the next question news organizations must ask: What content will readers pay for?
The Value of News
“News is not dead, and people will pay for valuable content,” Bettis, the Arkansas Business publisher, said. “That’s what we know … I think the challenge is really going to be for those who have a generic, broad-based content model, because there are so many people in that space, it will be hard to get anybody to pay for it.”
Lea said the Democrat-Gazette is betting on its sizable resources to keep readers paying.
“I would go back to the fact that we employ what’s the largest newsroom in the state,” he said. “We’ve got over 200 people statewide generating the content that goes into our newspaper. We believe that’s the foundation of our business model, and we have to continue to produce the news that matters to our readers.”
Strauss said the new pay walls at Halifax Media mean its papers must produce high-quality, local news.
“It just reinforces that what consumers are looking to get out of their local newspapers is valuable, original content,” Strauss said. “Not a rehashing of content that can be obtained over the AP wire or various places on the Internet. If you’re not putting value behind these pay walls, there’s no reason for consumers to try to get through them.”
In his speech, New York Times CEO Thompson said competition from instant sources of information like Twitter has made professional reporting vital.
“And yet the problem with Twitter,” he said, “is you don’t just get the news, you get everything else as well: uncorroborated but potentially precious eye-witness testimony and citizen journalism, but also rumor speculation, disinformation, propaganda, lies and general nuttiness.”
Thompson said the New York Times is working on features that could give readers further incentives to pay, especially with mobile devices in mind.
But he said the problem isn’t as muchcreating valuable content as making it sustainable.
“The challenge is making it pay,” he said.