Why 'Going Galt' Isn't the Solution for Newspapers

Experts Say Walling Off Content Would Damage Outlets, Boost Aggregators

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NEW YORK (AdAge.com) -- The Newport Daily News in Rhode Island has a new digital strategy: close its free, ad-supported site and sell an electronic edition that costs more than twice as much as getting the print paper in your driveway. It's a bold move that just might work. So why isn't every newspaper so brave? What if every newspaper gated off everything tomorrow? What if newspapers embraced the idea of "going Galt"?

Gordon Crovitz, former Wall Street Journal publisher and co-founder of Journalism Online
Gordon Crovitz, former Wall Street Journal publisher and co-founder of Journalism Online
Well, it would be suicide.

"Going Galt," a defiant notion getting new attention in some quarters, refers to Ayn Rand's novel "Atlas Shrugged." Protagonist John Galt advocates that creators should cease creating so that the government, painted as a parasite, can't impose taxes on the profits from their creations. Today some libertarians and conservatives want to protest the federal tax burden by "going Galt" and reducing their earnings. Their frustration is echoed in the newspaper business, where executives regret making all their content free online -- only to see aggregators and other sites get traffic and ad revenue by posting their news stories.

Print-ad revenue sank 30% in the first quarter to $5.9 billion, a quarterly mark not seen since 1985, according to the Newspaper Association of America. But newspapers aren't switching dollars to their websites. Online revenue fell too, 13% to $696 million -- still nearly an order of magnitude smaller than print.

So why shouldn't newspapers starve the web tape worms? As the CEO of the Philadelphia Inquirer and the Philadelphia Daily News said recently, "We can't spend $53 million on newsroom costs and give it away on the back door."

Ineffective protests
But neither tax protestors nor newspapers have enough leverage to hurt anyone but themselves.

First and foremost, newspapers would be abdicating to everyone from CNN to the Huffington Post, said Ken Doctor, a newspaper veteran who's now an analyst at Outsell. "If you're those companies, you say, 'This is our chance to finish those guys off.' CNN's not going to put up any pay wall. They don't need to."

"Going Galt" would be "the greatest boon for native internet journalism and content producers that there could be," said Michael Wolff, founder of Newser, a site that aggregates and summarizes news from around the web. Politico would keep reporting original news and publishing it free; Newser would keep rewriting and condensing articles, both from behind the papers' pay walls and elsewhere. And there's plenty of "elsewhere" for Newser to choose from. At its start 20 months ago, Mr. Wolff said, it got 85% of its material from traditional news sources. Now it gets about 55% from traditional sources. That's because the competition keeps growing.

"This is not the experiment that I would recommend," said L. Gordon Crovitz, former Wall Street Journal publisher -- and, before that, head of electronic publishing for Dow Jones. Mr. Crovitz and Steve Brill have started Journalism Online, which offers services meant to help newspapers get paid for digital content.

But they're not advocating a high and wide wall for everyone. "It's now possible for news publishers to use online usage data to have their cake and eat it, too -- to have plenty of inventory to meet advertiser needs while also generating significant subscription revenue," Mr. Crovitz said. "The opportunity is for publishers to focus closely on what their brand and journalism truly stand for -- and what differentiates their offerings so that they can migrate their most engaged 10% of online users to become paying subscribers. As more news publishers pursue this hybrid or 'freemium' strategy, they will benefit from the added bonus that advertisers are delighted to pay a premium for page views by paying subscribers, whose engagement with the site is highest."

That model, which Journalism Online is discussing with undisclosed news publishers, could generate "tens of millions of incremental profit per year for many publishers," Mr. Crovitz said.

Near-monopolies
The Newport Daily News experiment might work mostly because it comes in a market with little competition for local news. That actually reinforces the fact that newspapers got almost all their leverage from near-monopolies. The strategy also highlights advertising's central place in the story, despite the hopes pinned on new circulation revenue online. Why is home delivery of the Newport Daily News in print cheaper than the electronic edition? Because the price of the print paper doesn't cover the cost of producing and delivering it; advertising covers about 85% of those costs.

"The real crux of this is that the next couple of years are going to be about experimentation," said Andy Ellenthal, CEO of QuadrantOne, a joint venture by some newspaper companies that sells sites' local inventory packaged into multimarket buys. "No one expert or pundit or thought leader or someone like myself can say, 'This is what's going to happen.'"

"It's unlikely that newspapers will throw all their content behind a pay wall," said Randy Bennett, senior VP-business development at the Newspaper Association of America. "The bulk of the revenue newspapers will get will continue to be from advertising. And that means aggregating a mass of eyeballs."

"So it's more about: Is there some incremental revenue? Are there ways to protect the print franchise? And is there a way to gain a fair share of revenue from advertising that is placed against newspaper content outside of their own sites?"

What to do (and not to do)

REALLY BAD IDEAS
  • Pay walls for all: By establishing subscription-only news, newspapers will open the doors to aggregators and other news sites who will pay for subscriptions but then rewrite news and disseminate for free.
  • Limiting eyeballs: By walling off all of their news content, newspapers would be limiting the number of people they can attract to their sites, thereby making them even less attractive to most advertisers.
  • REALLY GOOD IDEAS
  • Added value for some: Not everyone will pay for everything a newspaper has to offer, but some truly avid and interested readers will pay for added information, more in-depth reports and access to community information not available elsewhere. Charge for that.
  • Get ads to follow content: Newspapers need to find a way to get credit for all the audience their content attracts, even outside their own sites. Rather than taking all their content away, they should be working on a model to get those who use their content to pay for it, either by sharing ad revenue or charging syndication fees.
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