Thanks!

My viewpoint:
We lack credible data and I agree with that. Say nothing about newspaper industry to take on risk and go for it. They forget the tried and true are of trial and error. They’re so risk adverse all the while the industry is deteriorating and remains the butt of every analyst’s joke. I will not take on the questions like,
” how much journalism the market will pay for? What kind of journalism will it support?”
Let’s assume (there I go using that word) that in this sample newspaper example, the volume of news content that can be organically generated and classified as premium (hyper local, investigative reporting, features all with supportive media making the reading experience online relatively enjoyable) as not an issue.
Then this boils down to Sales 101.
It makes no business sense whatsoever to charge newspaper readers for the same content you give the online user free. If industry executives had to deploy a paid new content model online in 90 days these would be the questions they would need to ask.

1. What is our visitor conversion strategy when the web site greets a potential buyer?
a. Start setting visitor expectations from impression number 1….your homepage.

Most newspapers have the same homepage layout. That layout is not ideal for audience conversion. When I go niche newspapers that do charge for access. I still get the impression the news is free. I am never asked to pay until I click on something they want me to now pay for. The message I get as a visitor is something like:

..”come on in, look around, no pressure. A lot of content here, everything is good. You want to click on that…good ahead, yeah. HEY, YOU GOT TO PAY”.
Sales 101:

Set the right expectations in the prospects mind early into the user experience. Publishers should clearly distinguish the areas of the site as to what is premium content and therefore requires payment, and what is free content. You would follow the 5 year old…design newspaper sites so a 5 yr old couldn’t get lost. Visitors to newspaper web sites would need to get an the immediate impression when the homepage loads that “Classified” content is free. This way before the first click takes place the expectations have been set. Newspaper are not known for being experts in merchandising the news, but they should be. Newspaper need “retailer experience” because their users do not have the expectation to come to news sites with their credit card in hand. Why is setting proper expectations early in the sales process important?

Because it drives the conversion percentages higher.

Unsold Inventory:

Everyone who writes on the paid content model assumes the declines in audience will be terrible for advertising. How many newspapers have ad inventory sell out ratios of above 30%? For every online manager who tells you 50%, 60% and 70% or more of inventory is sold, is a guy who truly doesn’t know what his capacity is.

Side Bar: I recently had this conversion with online manager at a chain newspaper site. His name and site will remain anonymous but his title was long and I naturally assumed he was experienced and very smart. He stated his sell out ratio was almost 80%. I asked him how many page impressions (with ads) on average per month his site was experiencing. His answer was 15 million. I asked if he knew what is average cpm was? (99% of every online manager doesn’t know) He answered “probably $15 cpm”. OK, sounds reasonable. What are you doing in monthly ad unit sales on those pages? He answered between $150,000 and $200,000 per month. Just on ads. By the way, a cursory look on his site led me to believe that his ad template render anywhere from 3 to 4 per pages. So, for math purposes let’s say 3.5 ad units per page. Well, when you do the math, you realize he has no earthly idea what his sell out ratio is.

1. 15M page-views x 3.5 ad units per page is 52.5M in monthly ad inventory
2. 52.5M ad inventory at $15CPM = $787,500 per month if 100% sold out
3. He stated his sell out ratio was almost 80%, so 75% sell out ratio would total $590,625 per month.
4. He is at $150,000 to $200,000, so even using the higher number, he seems to be at a 26% sell out ratio not almost 80%.

The side bar point is if in fact most newspapers are at a 25% to 30% ad inventory sell out ratio, then conceivably they could withstand a 75% decline in page views with little impact paid ad unit sales. This would also drive the sell out ratio through the roof. Why is knowing your sell out ratio and the TRUE total unsold inventory?

Because most publisher’s do not feel like being the innovator of a new web site model for news. If they had all the data, they might deploy these models and then the industry would have empirical data on conversion rates. They would tweak their user conversion process over and over until they dialed in for maximum conversion success.

Classifieds:

So much of the current revenue mix on newspaper web sites remains classifieds. Launching a paid news model online would have to take place with little impact to the current classified audience. This is merchandising 101. Some newspaper web sites do a good job highlighting the various segments of classified content within tabbed widgets.

The Daytona Beach News-Journal’s site, news-journalonline.com does a good job on the homepage receiving and flowing the visitor to the appropriate channel of content. However most publishers recognize 65% of their online revenue comes from classified but then turn around and do a poor job merchandising to visitors their content. Some of the largest newspaper chain web sites do a poor job. Why is this a important?

Because if publishers do not know how to protect audience, they do not know how to channel and convert audience. I feel these issues are more at the heart of why the newspaper industry has not been successful with deploying paid content as a revenue generating model. There are many other variables publishers need to consider, but the basics have eluded them.

I think journalism schools will find that MBA programs will take even more of their best raw talent than they already do.

And I seriously doubt that many folks will find pure journalism jobs, because the economics of journalism are so difficult and most media are so prostituted. Look at CNBC and how it’s becoming the flack channel for GE’s green businesses. Who wants to be part of that?

My experience as an editor and publisher is that readers seldom know what stories they want to read. They’re the last people to know what will make a good content provider, but they can react to what’s offered. Thus, I doubt readers would propose stories that make much sense or generate many cents in revenues from a broad audience.

How do local publishers translate BNA’s and other trade publishers’ experiences into business models for local journalism?

1. Focus on content that directly helps people make money and avoid losing money as professionals, contractors, traders and, I guess, gamblers.
2. Think small. The Rocky’s former staff tried to start an online service with 30 employees. Economically impossible. Try two or three staffers at most.
4. Get one company or organization to sponsor the news site. I think a ReMax site that focused on a suburban or Metro home market and reported honestly as well as in great detail would be a winner, for example. How much could the ReMax offices in an area afford? $50k, $100k a year? How would they profit? List participating brokers and their listings. Links to listings. Profile pages for brokers. Stories about how brokers know their “farms” and bring in buyers.
Have an equipment rental company sponsor a site on local muni RFPs and contract awards. Audience is contractors who rent equipment. Budget? $50 or $100k.

5. Look at the single-sponsored sites backed by drug companies and companies that cater to expecting parents. I think they’re making life difficult for publishers of parenting pubs. They’re in the publishing biz, and much of their content is provided free by readers on message boards, etc. Some people with journalism training are involved in these sites, I’ll bet. But I’m not sure you need journalists to make them go. You need good PR and promotions people.

The trick is to come up with sites that help readers and advertisers make money. Sites that are fun and interesting make it when they involve gaming, porn and gambling, but they don’t cut it with cutesy profiles of celebs. Sports sites may make it if they help gamblers win. Remember, sites published by major league teams are single-sponsored affairs and may make it difficult for outsiders to make money on blogs, etc. unless they offer really unique perspectives that help gamblers (paid content) or advertisers (free content).

I’ve been a news junky for almost 60 years, and I don’t subscribe to the local town weekly. I just don’t care about local news and gossip. I almost let my Denver Post sub lapse, and I might give it up next year, because I don’t have much time for it because it doesn’t help me make or preserve money or make good decisions about elections. Interesting and entertaining, yes, but I can get that for free on the Web. I get Bloomberg and WSJ.com on my iPhone. How many others feel the same way?

Your breakdown of the elements of paid content businesses is helpful, especially to understand the differences with advertising-supported, donation-suported, and grant-supported journalism.

As comprehensive as you’ve clearly tried to make it, I believe it still underweights several of the key psychological and network-related factors that make online paid content businesses different from previous monetization models.

At the heart of every decision to pay is a value calculation that occurs in the mind of the individual user. Figuring out what would make *you* pay is helpful, but not nearly broad enough to include everyone else, whose motives and values will not be identical to yours.

A range of environmental factors wrapped around the content — bundles, discounts, concealed subsidies, trends, peer pressure, economic issues these days — all affect this value calculation.

Complicating the calculation further are “Internet-native” factors, including estimation of repeated use, time-saving potential, social network effects, personalization, interface design, and the uniqueness of the content or service.

Because of these factors, paid content is really a different species of business with its own rules and characteristics. We sum it up this way: cheap is the new free.

From the perspective of the content provider, SIZE matters enormously. No single solution will work for all levels and types of journalism or media. From the leading edge of the long tail down to the most obscure niche, there have to be a range of methods, options, and models.

Our experience has been with a niche music service. We were in a relatively advantaged position to launch a subscription streaming service in 2001: we had an 18 year national presence on public radio, we had an established and well-accepted brand, and we had an inventory of unique, high quality content to offer.

But the fact is, we had no choice but to charge. No one was going to give us any kind of funding, and our traffic numbers made any thought of advertising support a fantasy — especially in 2001.

But it has taken us a long time to begin to understand the value calculation that our users make when deciding whether to pay. We have found that the entire area is very nuanced, and the relationship between free, paid, and “freemium” models takes careful experimentation to get right. We wound up with 3 major levels of service and no less than 25 different pricing options. (see PLANS at http://www.hos.com)

Despite what must be a record number of payment choices for a site our size, we continue to be surprised by the granularity of service options that users ask for. Ultimately we may need to build an interface that allows users to pick service levels and payment options from a menu and construct a custom solution for themselves, like Dell and Apple do with their hardware.

We have concluded that it is not up to us to tell our users how to interact with or how to pay for our content. Beyond the content itself, our job is to provide the choices.

We’ve found you need to pack your paid service with value from the start, drive the price down as far as you can, keep adding value, innovate, repeat. Once you are rolling, daily interaction with your users will teach you everything else you need to know. After all, they have choices and they decide.

Takeaway: Cheap is the new free. But value is fundamental if you want to get paid.

It is good to see you taking this kind of approach to a subject about which you have made clear your immense skepticism.

At SubHub we have built a business model for our customers to use when they build a paid website on our platform. I think it captures most of the moving parts of the model. We’d be happy to share it.

I must add that I think it’s very important to define what you mean by “paid content.” This is often lost in the discussion. If you mean newspapers putting all their content behind a pay wall, of course this is not workable. If you mean unique, exclusive, high-value content, it’s very possible.

If you do not clearly define the product offering, you will not be able to pinpoint a model nor reach any useful conclusions. Paid content is not a generic term; there are many paid content approaches. Which one will you and your students choose to evaluate?

Kind regards,
Evan

Stories can’t be “voted” down, no one – or rather everyone – owns them, they are reported according to established standards of journalistic integrity and once a story is paid for, it gets published and stays published – no exceptions.

This may work better for investigative and feature stories. However, if one story is overpaid – say Brittney Spears is coming to town and so many folks want to pay for it there’s more money than needed – the extra money goes into a pool toward other news reporting.

I’m not suggesting that this would be a news organization’s ONLY revenue stream, but one of many. Likewise, not all stories would be user-financed and not all user-financed stories must be first suggested by users, the news organization can put its own suggestions up for consideration as well.

* Use a special currency on the site, call it “points” for example. Each point is worth $1. People can buy point packages at a discount, say 50 points for $45.

I would be happy to participate in this project. Scoop.co.nz – Scoop Independent News – is a new news model which has been operational in NZ and self supporting for 5 years. We publish a combination of aggregated raw news and news and analysis produced by professional journalists. We do not have a pay wall – but that does not prevent us earning subscription revenie.

I am an ex newspaper journalist and founder/General Manager of Scoop.co.nz. We employ 7 FTE people – down from 11 last year before the crisis required some restructuring.

Our experience I think may be useful to your discussion. Our experience fits all three of your base case models hyperlocal, ecosystem, and our own take on paid content – which doesn’t necessarily mean people paying to read content.

regards
Alastair Thompson
Scoop.co.nz

Look to the Bureau of National Affairs (http://bna.com) as an example of a newspaper that hit hard economic times and responded by adopting a new business model based on charging for hyper-focused news (many products are daily and all are advertising free). In BNA’s latest 10K, they reported 1,745 employees (almost 1,000 Guild members), earnings of over $350 million/year, only $23 million of long-term debt, and a stock price that has trounced the S&P 500 over the last 5 years… This company, the oldest fully employee owned company in the US, should be the lead example of how a newspaper can redefine its business and not just survive, but thrive!

Jeff, how about having one of your journalism students write up a study of BNA? Call it: “How one newspaper changed its business model…” You’d need to start back in 1929 with David Lawrence’s “United States Daily” newspaper and then work forward from there to understand the challenges faced by the paper and how they were responded to…

We’ve been here before. Let’s learn from the past. Hyperlocal is only one form of specialization…

bob wyman

further: @price points: a newspaper copy costs less than starbucks coffee we buy to enjoy our read or the few text messages we send while reading the newspaper… point is: 1) it is not about the absolute price point but about the value perception and 2) it matters whether the payment is direct and overt (handing over 50c for a physical copy) or indirect and hidden (getting a mothly charge a few days later embedded in a large bill at a much higher dollar amount)

lastly: @pricing model: who pays directly vs. indirectly and pay per drink vs. lump sum? comeswithmusic nokia phones buyers pay for the music, but is included in one-time purchase with the phone – nokia pays the labels; cable tv viewers pay for the content, not in small increments but in one monthly lump sum – cable company pays the content producers (studio’s). along these lines, should internet access providers increase the monthly bill slightly and turn around and pass along most of this to newspaper/content producers (or right organisations representing them) in turn?

good luck with the project