[Paleopsych] NYT: Can Papers End the Free Ride Online?

[Premise Checker]

Business > Media & Advertising > Can Papers End the Free Ride Online?
http://www.nytimes.com/2005/03/14/business/media/14paper.html
March 14, 2005

    By [1]KATHARINE Q. SEELYE

    Consumers are willing to spend millions of dollars on the Web when it
    comes to music services like [2]iTunes and gaming sites like Xbox
    Live. But when it comes to online news, they are happy to read it but
    loath to pay for it.

    Newspaper Web sites have been so popular that at some newspapers,
    including The [3]New York Times, the number of people who read the
    paper online now surpasses the number who buy the print edition.

    This migration of readers is beginning to transform the newspaper
    industry. Advertising revenue from online sites is booming and, while
    it accounts for only 2 percent or 3 percent of most newspapers'
    overall revenues, it is the fastest-growing source of revenue. And
    newspaper executives are watching anxiously as the number of online
    readers grows while the number of print readers declines.

    "For some publishers, it really sticks in the craw that they are
    giving away their content for free," said Colby Atwood, vice president
    of Borrell Associates Inc., a media research firm. The giveaway means
    less support for expensive news-gathering operations and the potential
    erosion of advertising revenue from the print side, which is much more
    profitable.

    "Newspapers are cannibalizing themselves," said Frederick W. Searby,
    an advertising and publishing analyst at J. P. Morgan.

    As a result, nearly a decade after newspapers began building and
    showcasing their Web sites, one of the most vexing questions in
    newspaper economics endures: should publishers charge for Web news,
    knowing that they may drive readers away and into the arms of the
    competition?

    Of the nation's 1,456 daily newspapers, only one national paper, The
    Wall Street Journal, which is published by Dow Jones & Company, and
    about 40 small dailies charge readers to use their Web sites. Other
    papers charge for either online access to portions of their content or
    offer online subscribers additional features.

    The New York Times on the Web, which is owned by The New York Times
    Company, has been considering charging for years and is expected to
    make an announcement soon about its plans. In January, The Times's Web
    site had 1.4 million unique daily visitors. Its daily print
    circulation averaged 1,124,000 in 2004, down from its peak daily
    circulation of 1,176,000 in 1993.

    Executives at The Times have suggested that the paper, which already
    charges for its crossword puzzle, news alerts and archives online, may
    start charging for other portions of its content, but would not follow
    the Journal model, which charges online readers $79 a year for
    everything.

    (The Journal charges $39 a year to online readers who also subscribe
    to the printed newspaper.)

    "A big part of the motivation for newspapers to charge for their
    online content is not the revenue it will generate, but the revenue it
    will save, by slowing the erosion of their print subscriptions," Mr.
    Atwood said. "We're in the midst of a long and painful transition."

    Most big papers are watching and waiting as they study the patterns of
    online readers. Analysts said that the growth in readers was slowing
    but that readers appeared to be spending more time on the Web sites.

    "We're always looking at the issue," said Caroline Little, publisher
    of Washingtonpost.Newsweek Interactive, the online media subsidiary of
    The [4]Washington Post Company. She said that the online registration
    process that most papers now require for use of their Web sites, while
    free, lays the groundwork for charging if papers decide to go that
    route.

    "You're getting information from your users and you can target ads to
    your users, which is more efficient for advertisers," she said. "This
    has been a dipping of the toe in the water."

    The Post has no plans to charge now because it would mean too big of a
    drop-off in readers. "It's just not a strong financial proposition at
    this point," she said.

    Executives at other newspaper groups, including the [5]Gannett
    Company, which publishes USA Today, said they had no plans to start
    charging either.

    A report last week from the Online Publishers Association underscored
    the challenges facing newspapers in selling news. Internet users spent
    $88 million for general news in 2004, or just 0.4 percent more than
    they paid in 2003, the report said; by comparison, they spent $414
    million on entertainment, up 90 percent.

    Rob Runett, director of electronic media communications at the
    Newspaper Association of America, eyed the report ruefully. News, he
    said, may become an acronym for "Not Ever Willing to Spend."

    The [6]Tribune Company, which owns The Los Angeles Times, The Chicago
    Tribune and other papers, has conducted limited experiments in
    charging for access, some more successful than others.

    The Los Angeles Times charges $4.95 a month for its Calendar Live
    section, which covers entertainment and provides listings and
    restaurant reviews, but traffic to the site has declined and a
    spokeswoman said the paper was reviewing the decision to charge for
    it.

    The Chicago Tribune offers a "subscriber advantage" program, which
    gives print subscribers free access to archives and bonuses online.
    "It's an interesting first step to see how people react in trying to
    differentiate between the two products," said Alison Scholly, general
    manager of Chicago Tribune Interactive.

    The difficulty comes in determining what readers will pay for on the
    Web. Most executives agree that national news can be found in so many
    places that it would be self-defeating to try to charge for it. But
    they are finding that readers will pay for sports, if the Web offers
    more than the printed page. The Milwaukee Journal Sentinel provides
    in-depth coverage of the Green Bay Packers, along with blogs, fan
    photos and audio reports, in "Packer Insider" for $34.95 a year.

    But for the most part, publishers make money on Web sites by selling
    space to advertisers, and that is a booming business. Mr. Atwood at
    Borrell said a preliminary analysis of online revenues for about 700
    daily newspaper Web sites showed an average increase of 45 percent
    from 2003 to 2004.

    But some newspapers want to develop a cadre of paying readers as a
    second stream of revenue beyond the advertising.

    Bill Keller, executive editor of The New York Times, said of relying
    on advertising as the sole revenue stream: "My main concern is that,
    however we distribute our work, we have to generate the money to pay
    for it. The advertising model looks appealing now, but do we want our
    future to depend on that single source of revenue? What happens if
    advertising goes flat? What happens when somebody develops software to
    filter out advertising - [7]TiVo for the Web?"

    At the same time, he said, charging for the Web site could alienate
    both current readers and potential new readers, particularly in
    growing markets like China and India, and The Times would be limiting
    its global reach.

    Perhaps the biggest obstacle for newspapers is that online readers
    have been conditioned to expect free news. "Most newspapers believe
    that if they charged for the Web, the number of users would decline to
    such an extent that their advertising revenues would decline more than
    they get from charging users," said Gary B. Pruitt, chairman and chief
    executive of the McClatchy Company, which publishes The Sacramento
    Bee, The Star Tribune in Minneapolis and other papers, which do not
    charge for their Web sites.

    The Wall Street Journal experiment suggests the contrary. About
    700,000 people subscribe to its online edition, with 300,000 of them
    subscribing to the Web edition only and 400,000 subscribing to both
    the online and print editions. The print edition has 1.8 million
    subscribers.

    "If you have strong value, people will pay for it," said Todd H.
    Larsen, president of consumer electronic publishing for Dow Jones,
    which owns The Journal. "There is nothing so magical about the
    Internet that everything has to be free."

    The Journal's experience may not translate to other papers. It is
    primarily a financial paper, and analysts said that it is a business
    expense for many readers buying it. Moreover, charging online brings
    its own problems. By limiting readership to subscribers, papers also
    limit the amount of advertising space they can sell. Earlier this
    year, Dow Jones spent more than $519 million for MarketWatch, the
    financial news Web site, largely as a way to attract advertising that
    it was not getting online.

    When the paper first charged for its Web site in 1996, daily traffic
    fell by about two-thirds, said Rich Jaroslovsky, who was the managing
    editor of The Wall Street Journal Online at the time and is now a
    managing editor at Bloomberg News.

    "You have to take the hit some time if you do this," he said of
    charging for a Web site. "We took the pain because we felt over the
    longer term, we'd see the gain."

    Since 1997, The Journal's Web site has grown, although growth has
    slowed dramatically. Subscriptions jumped 35 percent from the third
    quarter of 1999 to the third quarter of 2000, for example, but grew by
    just 2 percent from 2003 to 2004, according to the company. This
    reflects an industrywide slowdown, said Merrill Brown, the founding
    editor of MSNBC.com and a media consultant. "There is no question that
    growth has slowed as the medium has matured," he said.

    "It's a pretty stagnant business for a variety of reasons," he added.
    "At a moment when big papers are so financially stressed and their
    prospects uncertain, they aren't investing at the level they need to
    grow their alternative distribution platforms."

    On a smaller scale, another newspaper that charges for its Web site is
    The Spokesman-Review in Spokane, Wash., which has a print circulation
    of around 100,000. About 20,000 of those print subscribers also get
    the paper online for no additional fee; just 545 people pay for the
    Web edition only, at $7 per month.

    Ken Sands, the online publisher, who until a month ago was the
    managing editor of the print edition, said the paper decided to charge
    for the Web in an effort to save the print edition.

    "We had the sense that a lot of people had canceled their print
    subscriptions because they could read the paper for free online," he
    said. He said that as soon as the paper started charging for the Web,
    in September, new daily traffic, which had been growing by more than
    40 percent a year, stopped cold. He said that traffic was 5 percent
    lower this January than it was in January a year ago. He added that
    the print circulation had been steadily declining somewhat anyway, and
    so he could not blame the Web for that.

    "Print is going the way it's going, which is down, which is
    unfortunate because it's the revenue engine that keeps this whole
    thing going," he said. "The online business model won't ever be able
    to support the whole news infrastructure."

    Mr. Jaroslovsky, the former editor of The Wall Street Journal Online,
    said that some publishers were regretting not having charged for the
    Web back in the 1990's when it was developing, because doing so now
    will be a bigger shock to their readers. Also, he said, the stakes are
    higher.

    "When we did this, we were at the beginning of an investment curve and
    the amount of money at stake was not as great," he said. "Today, if
    you make a wrong decision, there's a chance it will be not only
    embarrassing, but very costly."

References

    1. http://query.nytimes.com/search/query?ppds=bylL&v1=KATHARINE%20Q.%20SEELYE&fdq=19960101&td=sysdate&sort=newest&ac=KATHARINE%20Q.%20SEELYE&inline=nyt-per
    2. http://reviews.cnet.com/Apple_iTunes_46/4505-3513_7-20201986.html&inline=nyt-classifier
    3. http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=NYT
    4. http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=WPO
    5. http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=GCI
    6. http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=TRB
    7. http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=TIVO