Free for All

By Published on .

For newspapers, in spring 2005 it has come to this: People can't agree what "free" means.

On one side, newspaper executives claim sanguinity when confronted with the suite of competing properties that deliver key chunks of newspaper revenue streams for free: free daily interlopers like Sweden's Metro and Philip Anschutz's Examiner papers. Free content and commentary on the Web. Free, or cheap, classifieds from Internet-site-cum-cultural-phenomenon, which as of early April had sites serving 71 U.S. cities/regions-and more of its disarmingly bare-bones sites will come soon.

On another side, Wall Street analysts and savvy media observers see in "free" the stirrings of what one analyst terms a "secular" change-the beginning of a severe disruption to newspapers' longstanding business models.

One may as well get the caveats finished first: Historically, established media have not turned into ghost towns overnight. Newspapers have survived through multiple waves of new technological threats. Newspapers have survived media fragmentation so well, in fact, that the typical daily remains the last local mass medium standing.

But the latest ripples in the pond are not easily dismissed. Two respected Wall Street analysts-Paul Ginocchio of Deutsche Bank Securities and Steven Barlow of Prudential Securities-in recent months issued lavishly researched reports documenting a sharp rise in the volume of deeply discounted subscriptions, which put in bold relief newspapers' struggle to maintain circulation revenue. A report released in late 2004 by Classified Intelligence found Craigslist had cost newspapers in the Bay area between $50 million and $75 million in lost help-wanted classified revenue alone.

Circulation accounts for 16% of total newspaper revenue, according to Mr. Ginocchio's calculations. In 2003, according to the Newspaper Association of America, classified ads accounted for $15.8 billion, or around 35% of total ad revenue. Classifieds are also newspapers' simplest and most profitable revenue stream, which, in the words of one veteran media executive, "is why newspaper companies get killed when classifieds go down."

Suddenly, the conceptual question facing newspapers is very simple, and thus not so easily answered.

How do you fight what's free?


"I get up. I do some customer service. Then prepare for the day. Then do more customer service. Get some coffee and read the paper. Do some more customer service. Get lunch. Do more customer service." Craig Newmark, founder of, is describing a typical day.

The most important thing about Craigslist is that it's working off an entirely different set of assumptions to newspapers, and businesses in general. For Craigslist, which started in 1995 and now employs 18, utility and community are all. Revenue generation is an afterthought. It supports itself, its site says, "by charging below-market rates for help-wanted ads in SF, NYC and LA."

For the uninitiated, Craigslist is best understood as an electronic version of a large wall in a college town, fully aflutter with all manner of handmade fliers-for goods, services, events and housing, or ranting about life's minor annoyances and musing dazedly about bigger questions.

Got that? Now multiply it by 105 cities in 21 countries, sort it by a dizzying array of topics grouped under nine categories, and give it 2 billion hits a month by 7.5 million unique users. Then you've got Craigslist.

That it's turned into a fairly serious business seems almost accidental, but serious business it is. It's also one that appears impervious to certain standard business propositions like, say, a high-multiple buyout from an established media company. (In published reports, executives have attributed the sale of a 25% stake to eBay to one Craigslist shareholder who wanted to move on.)

On the subject of Craigslist's impact on papers, both Mr. Newmark and key newspaper executives agree. "A lot of what we get are ads that would never go to newspapers," he says. "I want to help preserve journalism jobs ... We feel we have a moral obligation to help, or get out of the way, at least."

Knight Ridder and Tribune Co. have begun offering Craigslist-esque free classifieds for the sale of low-cost merchandise. Knight Ridder Senior VP Hilary Schneider says the revenue hook involves selling add-ons, like digital pictures or premium placement for a fee. After offering the free ads, she says, "our unique visitors doubled virtually overnight." And Tribune Co., says Tribune Interactive President Tim Landon, will continue "tinkering" with its mostly free "The whole online classified business will continue evolving," he says.

Others are less optimistic. "The economy has been doing OK for the last two years. But we haven't seen help-wanted come right back to the extent we saw in 1991 and 1992," says one analyst who requested anonymity, pointing to one potential Craigslist effect.

"Long term, there will be an effect" from Craigslist, says Gary Pruitt, chairman-CEO of McClatchy Co., which publishes 12 dailies including Minneapolis' Star Tribune. "We have not seen any measurable effect yet."

"My sense is, at this point, that Craigslist is more targeted toward jobs that don't go on and [newspaper-owned site]," Mr. Landon says while conceding that "clearly, Craigslist is having an effect in the marketplace."

Meanwhile, classifieds remain sluggish. "To hit second-quarter [earnings] assumptions, classifieds need to show a pickup. It doesn't seem like it's going to happen," says Mr. Ginocchio. "There's not a ton of acceleration in help-wanted." Despite strong first-quarter help-wanted results from Gannett Co., his figures show growth slowing in total industry help-wanted revenue. (Craigs-list's job boards receive the most traffic, according to the company's stats.)

Regarding free dailies, newspaper executives point out that they reach consumers who don't read daily papers. The counterpoint, though, concerns how this trains the next generation of consumers. "Definitely, there is some conditioning," Mr. Ginocchio says.


"Reading a free daily is a very good thing in terms of potentially seeding our paid daily," says Chris Ma, publisher of The Washington Post Co.'s Express free daily. "Can we cite a direct correlation at this point? It's much too early to tell."

Still, the paid model is under pressure. Across 40 major metro dailies, Mr. Ginocchio's analysis found that total subscriptions at less than 50% of "basic" subscription rate doubled in the six-month periods ending in March 2002 and March 2004, and now make up around 10% of total circulation. Mr. Barlow found that while total newspaper circulation dropped 0.7% for the six months ending last Sept. 30 compared with the year previous, full-price home delivery and full-price single-copy sales fell 2.5% and 6.8%, respectively.

These facts aren't lost on key publishers. "In the next audit, we're shaking out a lot of that 'other paid' circulation," says Tribune Co.'s Mr. Landon, referring to lower-price circulation.

Tangentially, New York Times Publisher Arthur Ochs Sulzberger signaled to Business Week last January that he was mulling a paid-content model on "It gets to the issue of how comfortable are we training a generation of readers to get quality information for free."

Were the Times or another player like The Washington Post to move to a paid Web model, it could embolden others to follow, and thus significantly alter one aspect of the "free" landscape. (Assuming, of course, such shifts to a paid Web model work as well as The Wall Street Journal's.)

Until then, newspapers must struggle through a warping economic landscape, where free news content keeps taking new forms and where free online classifieds continue their international march.

"I guess it's hard to argue with 'effective,' " says Mr. Newmark, the non-mogul.

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