Posted by: structureofnews | November 29, 2010

Who Pays Your Salary?

That’s the question I used to open my Business of Journalism class, back when I started teaching it at Hong Kong University in 2005, with the idea that it would help students think through the business model they were dependent on.  Some students would talk about subscriptions; others about advertising, but in a very broad way, without say making the distinction between display and classified.  All in all, a good opening to discuss the complexities of the business model, and how oftentimes the people who read us didn’t pay the bills.

The question popped into my head again listening to a lunch talk by Gordon Crovitz, a former colleague at Dow Jones and now one of the founders of Journalism Online, which offers its PressPlus product that helps news organizations set up pay meters to bring in subscription revenue.

Advertising revenue, he notes, is falling sharply, and isn’t likely to recover.  So that points to turning increasingly to circulation as a revenue driver.  I don’t disagree at all, although I have serious doubts that circ dollars will bring news organizations anything close to the kind of money they’ve been used to.  Not that Gordon is suggesting any different; I suspect we agree that we still need to restructure our industry and figure out new products and processes.

But he does put an interesting framing/construction on a world where news organizations are much more dependent on circulation to pay the bills.  As he puts it, we’ll go from a world where we cared about advertisers to one where we care about readers.

That’s not to say that editors used to – or still do – pander to advertisers simply because they still pay the bulk of the bills.  (Although I’m sure that happens in various places.)  But it does torque priorities when you know where the money is coming from.  Many major business newspapers, for example, used to have advertising columns – not because people are dying to read about advertising campaigns, but because ad execs will pick up papers that run stories about them, and it’s important to be read by people who make recommendations about where advertising should run.   That’s not entirely pandering; it’s understanding readership patterns of a key demographic.

Similarly, knowing where ad dollars are – whether in fashion, B2B, autos – shifts newsroom resources and priorities.   Not necessarily in a bad way, but it does influence where the newsroom puts its attention.

So in a world where we only need to think about readers – and not mass readers, but deeply interested and committed readers on your particular area of coverage – how will editors choose to allocate limited resources?   Gordon thinks it’ll bring about a renewed focus on distinctive, non-commoditized coverage; and that better metrics will give much better feedback on what readers really want.  He may well be right – and that would be a good thing, if true.

Imagine: Actually being paid by the people who read us most avidly.  What will they think of next?

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Responses

  1. Reg,

    I sometimes wonder if one of the dogs not barking in all this is the fact that readers don’t want to pay for content because they have the viewpoint that they’ve already paid. Consider this:

    A customer goes into an Apple store and buys an iPad; then he signs up with the phone company for a data plan; then he goes online to hunt for stuff on Google. At each of those stages, a vendor is able to collect revenue by promising the customer access to a universe of free content.

    And yet none of the vendors actually has to pay for production of any of the free content being provided.

    Also, and at the risk of sounding picky, the statement that ad revenue is falling and not likely to recover doesn’t paint an accurate picture. What’s actually going on is that newspaper print revenue from advertising, what’s been about 90 percent of the total, is falling steeply, while online ad revenue is increasing but much too slowly to act as an effective offset in the near term. If memory serves, Rick Edmonds over at Poynter made a loose prediction recently that the average print/online crossover point for revenue would probably happen in about eight years.

    A more subtle problem, at least it seems to me, isn’t that online advertising revenue won’t rise, but that the rise will also come at a subtle cost which could be problematic on the news side. Back in June, the Interactive Advertising Bureau released a framework of guidelines so that contextual ads can match up with related content. Within the IAB guide is a fairly detailed taxonomy where main topics and sub-topics are organized to provide specific content meta tags. Lots of breakdowns for health and fitness, for example, not so much for government and politics. The guide is at http://www.iab.net/media/file/NE-QA-Guidelines-Final-Release-0610.pdf

    So the dilemma becomes this: The odd and unusual has always been a staple of the news business because, by definition, such stories defy categorization or predictability. How under IAB guidelines, for example, would you meta tag a man-bites-dog story? Under “Pets”? And if there is no way to put a story into a neat context cubby, does that mean it shouldn’t be written because it can’t somehow pay for itself?

    A bright spot in what is generally considered to be a grim scenario for journalism business models is that there actually are now useful discussions going on about how to somehow break out of a strict dependence on subscription and/or advertising revenue streams. For example, there was an interesting exchange last week on Steve Buttry’s blog (http://stevebuttry.wordpress.com) in which Buttry and Howard Owens of The Batavian got into a back-and-forth about author Clayton Christensen’s notion of disruptive innovation. The Buttry post also follows one he did in late October on alternate revenue streams. The Batavian, you may remember, is the online-only local news site Owens has put together in Upstate New York, and is profitable even though the city of Batavia has a population of only 16,000. Something conventional wisdom usually says can’t be done.

    My personal opinion, and I could be wrong, is that the news business not only is in dire need of some kind of disruptive innovation, but that such a fundamental shift is more likely to come from an operation such as The Batavian or The West Seattle Blog than it will from, say, The New York Times.

    Regards,
    Perry

    • Perry,

      Thanks for the thoughtful comments. I agree with you that readers not only aren’t used to paying for content, but also feel like they have been paying for access. And I don’t think that Gordon would argue that subscription revenue is any kind of panacea for the industry; I certainly don’t think it is. That said, if we can get some percentage of visitors – Gordon says 10% – to shell out some kind of money, it’s all high-margin stuff that drops to the bottom line. He reckons the NYT might yield an extra $100 million, which is a lot of money even for them.

      One question is what readers might be paying for. I don’t think people will pay for a single story, or even necessarily for the promise of a great story. The Curse of the Mogul makes a smart distinction between a regular stream of expectable content – a season of Lost, for example – vs. blockbuster hits – Transformers, perhaps (god help us all). News organizations, it seems to me, are in the first line of business – the promise of a steady stream of something: curated content, a regular commitment to covering high school sports, a standard of credibilty, something. Focusing on blockbuster stories gets us away from what we’re selling – or rather, what someone might pay for.

      I’d iterate the online advertising issue a bit more. Yes, online and print advertising will cross at some point, but mostly due to the fall of print advertising. I take your point about the categorization of contextual online ads, but I think the issues are much deeper.

      1. There’s a fundamental problem on ad inventory. There’s nearly no barrier to entry, so inventory is functionally infinite – or at least much larger than demand. So pressure on prices is here to stay.
      2. Related to no barrier to entry, advertising is distributed over a huge number of players now, not just former MSM. That reduces bargaining power, and it speaks to the rise of completely new competitive sets for those dollars. Newspaper classifieds are being whacked by Craig’s List and eBay, not being lost to some other MSM news provider.
      3. More fundamentally, online advertising is a completely different beast from print advertising, with a power relationship much more stacked in favor of advertisers. That only only leads to price pressure, but also to much more efficiency of advertising, so even a online publisher with huge traffic is much less advantaged than a print publisher with a huge circulation.
      All in all, I think the issues on print and online advertising are significant, and that it’s unlikely we’ll see a recovery. But hey, a lot of this is uncharted territory.

      And I do agree that we need to – and are – breaking out of the two-revenue stream view of the world. There’s much more, but as I note here regularly, we really need to rethink the whole structure of what we do, and how to create news products that people not only want, but value. But I know newsrooms all too well, and so I think you’re absolutely right when you say that the innovation – and the fundamental shift you mention – will come from outside of today’s news behemoths.

      Reg

  2. [...] a question Gordon Crovitz, one of the founders of Press Plus, the paywall provider, asked not that long ago as [...]


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