NEWS IS EXPENSIVE OFFLINE, BUT HOW CAN IT STAY FREE ONLINE?

What Everyone Is Talking About Today

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NEW YORK (AdAge.com) -- Newspapers will have to add between 20 and 100 online users for every reader they lose from their print edition if they are going to stay viable, a new analysis presented at the World Association of Newspapers posits. That’s because online revenue, despite a booming Web advertising market, does not yet cover the costs of these news organizations.

The revenue per reader for a newspaper Web site is far less than the equivalent figure earned by a print edition, according to the U.K.’s MediaGuardian, which covered the World Newspaper Advertising Conference & Expo, where the analysis was presented. American media strategist Borrell Associates conducted the study.

"As more and more people shift their news reading from print to online, the newspaper industry must dramatically increase its online advertising revenues or die," Vincent Crosbie, a senior associate at Borrell, told the Guardian.

Internet companies earned nearly $9 billion, 53% of all online ad spending in the U.S. in 2005, while American newspapers earned almost $4 billion in online advertising, including more than $1.9 billion from national online advertising, $1.7 billion from local online advertising and $222 million in direct referral online advertising. Watercooler wonders what will happen to all those portals and bloggers who have made a living off the news that news organizations have been giving away for free online if those organizations go out of business.

This is a problem Watercooler has long suspected lurked beneath the happy surface of pure-play Internet companies’ growth. Yahoo, Google and other portals essentially set up a business model that pointed people to work that was done -- and paid for -- by a lot of other companies. Until very recently, Yahoo and Google didn’t employ news staffs, or writers, or directors. During the early years of phenomenal growth, they were essentially soaring off the backs of companies still tied down to paying printing costs and employing large staffs of people who made phone calls and asked questions to find out what was actually going on.

Yahoo last year began to add some original content to its site under entertainment czar Lloyd Braun, but that has yet to pay off. What the giants of the Web are starting to realize is that creating all this content is hard and expensive. It’s also a lot more time consuming than just setting up browsers to let surfers know what’s out there. AOL, which did produce original content, long clung to its subscriber model which gave it another source of revenue. But now it too is a free portal.

The majority of U.S. newspapers’ Web sites do not charge for access to content, and those that have tried to put some of their words behind a wall -- like the New York Times Co. and its TimesSelect program -- have been derided for not understanding that the Web was meant to be free.

Print editions of American newspapers earn between $500 and $900 per consumer a year from a combination of direct circulation revenues and indirect revenues from advertising, according to Crosbie's analysis. "If American newspapers continue to lose 2% to 16% of their print circulation each year, they will need to gain 40% to 1,600% more Web site users just to stay even," he said.

One wonders: If the newspaper companies fail to gain those Web eyeballs, how much will pure-play Internet companies have to pay to produce the depth and breadth of content that the newspaper companies have been churning out? Who will foot the bill for news? Google? Yahoo? Consumers? Here’s hoping someone does.

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Editor’s Note: We apologize for missing a Watercooler post yesterday. We had an unfortunately long run-in at the New York Department of Motor Vehicles -- much, much longer than expected -- so we would have only been able to tell you what people were talking about there, mainly chatter about form MV-82 and “Is this the right line?” -- AMK

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