NEW YORK (AdAge.com) -- It was as if the media woke up, saw its shadow and realized that the print world, including American capital-J journalism, is in mid-collapse. It's finally dawning that this isn't just about the economy, and it's not going to suddenly get better when the Dow finally starts chugging upward again.
Nope, this is about newspapers, and to some extent magazines, having their once-enviable franchises disintermediated by the web. Every publication now must compete with every other around the globe, many of which are willing to offer their content for free. They also face competition from thousands of aggregators, who take journalists' content, monetize it for their own profit, and, in many cases, give little or nothing back to its originators.
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What to do? The media grandees weighing in had plenty of solutions (micropayments! Pay walls! ISP taxes! Nonprofit status!), but they can be distilled into two distinct camps: those who believe that consumers can be made to pay -- even a penny -- for content and those who don't.
Unsurprisingly, those who come from print-media backgrounds, such as former Time Inc. editor Walter Isaacson (who made his case for micropayments in one of the smallest issues of Time in recent memory), fall heavily into the former group. Then there are those who've had a bad experience trying to charge for content, such as Slate co-founder Michael Kinsley, and those who make a living from the web, who believe it is lunacy.
Law of nature
"Consumers won't pay; it's just that simple," said MSNBC.com President Charlie Tillinghast. "They'll read amateur blogs and everything else first before they pay for general news and information. Those are the physics of our business."
Easy for Mr. Tillinghast to say: MSNBC was built from the ground up on the free model, augmenting licensed content from the AP, Reuters and NBC News with content produced by a small newsroom supported by online revenue.
But even those who could theoretically be saved by a paid online model aren't buying. Mort Zuckerman, who said his New York Daily News was profitable until last year, is similarly pessimistic that a pay model of any type will save newspapers. "I think it's a wonderful idea, if it would be possible. I just don't think it is. The market will simply not accept it," he said on the "Charlie Rose" show, which appears on public broadcasting.
The backdrop for the debate is this: 77% of the members of the Association of National Advertisers say they are planning to reduce their media budgets this year, meaning nuclear winter for the media won't end until 2010 at the earliest. Meanwhile, print is most afflicted by budgets shifting online. Newspaper web traffic increased 12% in 2008, but online revenue started to decrease in the second quarter of 2008 for the first time since the Newspaper Association of America started keeping track. Online ad revenue at The New York Times was down 12.7% in December.
Those who believe a pay model can save newspapers hold out a few shining examples, including The Wall Street Journal and the Financial Times. But beyond publications that can be classified as a business expense for most of their readers, the ranks of those that have been able to charge for content grow very thin.
Steady circ in Arkansas
Then there's the Arkansas Democrat-Gazette, whose owner and third-generation newspaper publisher, Walter E. Hussman Jr., has been charging for access to its website ($4.95 a month) since it was launched in 1998. Since then, he said, while most newspapers have lost circulation, the Democrat-Gazette has remained steady.
Mr. Hussman acknowledged that the fee has cost the paper scale online -- his website is third in the market behind two local TV stations' -- but that's fine with him. Newsprint ad rates are $35 per thousand readers compared with $1 online. That's partly because advertisers have five or six options for print advertising in Little Rock, compared with thousands of options online, from Yahoo to Google to local blogs. Craigslist hasn't made much of an inroad in Little Rock because Mr. Hussman made classifieds free in 1979.
"I always ask people, 'When was the last time you bought something from looking at a banner ad?'" he said.
While charging for website access has preserved the Democrat-Gazette's print business, keeping it in roughly the state it was in 1998, Mr. Hussman is running up the white flag in local online advertising to Google and Yahoo. "Clearly they have lost less circulation, but they aren't building much of an online marketplace," said newspaper analyst Ken Doctor of research firm Outsell.
But Mr. Hussman isn't worried about losing a few $1 CPMs to Yahoo. "So what? If we want the traffic, we can get it in an instant," he said. "The traffic does not translate into revenue."
Is anyone outside the Democrat-Gazette successfully charging for general news content? "The reality is no," said Randy Bennett, senior VP at the Newspaper Association of America.
The pro-pay advocates argue that demand for news has never been higher. Indeed, traffic to newspaper websites was up 12% in 2008. MSNBC had 45 million unique visitors in January, probably the largest audience for any single news outlet ever.
But certain news categories, such as sports, business, national and international news, have been commoditized, and differences in quality haven't been enough to get people to choose to pay over free alternatives. "If we were to charge for our content, someone would be out there with the same content -- not as good or as deep but a percentage of our quality -- and would offer it for free, and we would lose overall reach," said Forbes.com CEO Jim Spanfeller.
Wall Street Journal managing editor Robert Thomson said the problem is that while Google is great at getting people to content, it does nothing to distinguish quality. "And if you are going to get people to pay for content, you have to encourage them to make qualitative decisions about that content," he said on PBS's "Charlie Rose."
In the past two weeks, plenty of industrywide solutions have been proposed, including a tax on the $30 a month most internet service providers charge for web access, similar to the TV taxes in the U.K. that support the BBC. Editor & Publisher columnist Steve Outing endorsed a start-up, Kachingle, that would allow people to pay a monthly fee to access participating websites.
Collective schemes have been mulled since at least 1995, when nine newspaper chains, including Knight Ridder, Gannett, Hearst and the New York Times, launched New Century Network to compete with Microsoft.
But assuming that the horse is out of the barn and publishers must convert to an online world supported by ads, is it possible? Online publishers say yes, and while it won't be dollars for pennies, as NBC Universal CEO Jeff Zucker is famous for saying, it will be dollars for nickels and dimes. The businesses are simply going to have to get a whole lot smaller.
In addition to the generally crummy economy, the display-ad model that funds newspapers online is broken, which is reflected in their slowing growth rates. That's partly because the bottom fell out of midmarket banners, the ads that fall between low-end direct-response ads and high-end branded advertising and account for half of revenue at some publishers.
Mr. Tillinghast laid that partly at the feet of publishers themselves and trade associations such as the Interactive Advertising Bureau, which pushed for standardized ad formats that commodified banners and created even more competition in the form of ad networks.
IAB President Randall Rothenberg took issue with that assessment. "Standards allowed the market to scale, and grew it from nothing to $20 billion market in about a decade," he said. "If you were to remove standards from interactive advertising, the marketplace would collapse overnight."
Ironically, just as they're pushing down ad rates, networks have become critical to newspapers' ability to compete with Yahoo and Google locally and move their own unsold inventory. Yahoo even operates an ad network for papers called Apt to allow them to increase their local scale.