Pay Walls

Friday, 24 July 2009

David Simon — former crime reporter for the Baltimore Sun, now best known as the co-creator of The Wire — lays out the argument in favor of newspapers charging for access to their web sites in this detailed essay for Columbia Journalism Review. His plan, in a nut, is that The New York Times and The Washington Post should, in concert, turn off free access to their web sites:

You must act. Together. On a specific date in the near future — let’s say September 1 for the sheer immediacy of it — both news organizations must inform readers that their Web sites will be free to subscribers only, and that while subscription fees can be a fraction of the price of having wood pulp flung on doorsteps, it is nonetheless a requirement for acquiring the contents of the news organizations that spend millions to properly acquire, edit, and present that work.

No half-measures, either. No TimesSelect program that charges for a handful of items and offers the rest for free, no limited availability of certain teaser articles, no bartering with aggregators for a few more crumbs of revenue through microbilling or pennies-on-the-dollar fees. Either you believe that what The New York Times and The Washington Post bring to the table every day has value, or you don’t.

The fundamental problem facing the news industry is simple: As the shift from print to the web accelerates, their revenues are no longer covering the cost of their operations. It’s not that they aren’t making money online, it’s that they aren’t making enough to cover their operations.

The potential solutions are, at a fundamental level, obvious: (a) generate more revenue from the web; (b) cut operating costs; or (c) both. Small measures will not do the job. And things are getting worse as more readers shift from print to the web. E.g., The Boston Globe (owned by The New York Times Company) lost $50 million last year, and will lose $85 million this year. In the U.K., The Telegraph is losing £200,000 (over $300,000 USD) per week.

So the core problem is not in dispute: newspapers aren’t generating enough revenue online to support their operations. Simon’s solution is to get the money from readers. Simon’s heart is in the right place; he loves and values newspapers, not merely out of nostalgia, but for the important role they play as civic institutions. He investigated and wrote a terrific piece earlier this year about the almost complete decline in press coverage of the police in his home city of Baltimore.

But I say he’s very much wrong that charging readers for access to news is a credible solution. It would just make things worse. If the Times and/or Post were to erect a pay wall, I see things playing out as follows: they lose most of their readers; ad revenue declines accordingly; the revenue they make from readers who do pay won’t even make up for the lost ad revenue; and so by switching from free to paid access they’d actually sink further into the red.

The consumer psychology of web subscriptions for news just doesn’t work out. It’s right there in the language we use to talk about newsstand prices for print periodicals: per copy. A dollar for a newspaper or a few bucks for a glossy magazine feels like a fair price for a copy. Trees have been cut, presses have been rolled, trucks have been driven to get that copy into your hands. Even subscription pricing for printed newspapers and magazines is always stated in the context of how much you can save compared to per-copy prices at the newsstand.

What feels like a fair price for a copy of a web page, on the other hand, is nothing. They’re just ones and zeroes.

Newsstand and subscription prices have never been the main source of revenue for newspapers anyway — advertising is. But they can’t make as much money from web advertising as from print for several reasons. Pre-Internet, newspapers had inordinate control over the supply of news, and therefore over the supply of advertising, and they grew fat on the profits.

The web has leveled the playing field for advertising. The supply of news, and of corresponding advertising venues, has increased dramatically and permanently. Newspapers will never make as much money from online advertising as they did from print because they will never again exert so much control over the supply of news.

Classified ads in particular were a source of obscene profits for daily newspapers. They’ve lost the market to Craigslist, which does a better job and lists most of them for free.

Yes, pay-for-access web subscriptions seem to be working for the Wall Street Journal and other niche publications like the Financial Times. But business news is a niche. They are the exception, not the norm, serving a market where it has long been considered normal to pay for immediate access to information.

Simon, arguing for pay walls, makes the comparison to TV:

For the first thirty years of its existence as America’s primary entertainment medium, television was — after the initial purchase of the set itself—provided at no cost to viewers, instead subsidized by lucrative ad revenues. The notion of Americans in 1975 being asked to pay a monthly bill for their television consumption would have seemed farcical. Yet in the ensuing thirty years, we have become a nation that shells out $60, $70, or $120 in monthly cable fees; indeed, whole vistas of programming exist free of advertising revenue, subsidized entirely by subscriptions.

He is right that with TV, most people now choose to pay for what was once free. But any comparison to newspapers is fundamentally flawed in numerous ways.

With cable TV, you pay one monthly fee for all channels, not for each channel separately. And in return, you get a vastly improved service. I remember from my childhood when my family switched from free over-the-air TV to cable. Over-the-air we got 11 channels, many of them full of static. With cable we got dozens of channels, all of them crystal clear. My parents seemed happy to pay in exchange for what we got in return. With newspaper web access, Simon is proposing that readers start paying for the same thing they now get for free.

There’s also HBO (and similar premium channels like Showtime) which viewers do pay for specifically. But HBO offers exclusive premium content, and has always presented that content without commercial interruptions. You can’t get shows like HBO shows on regular TV channels. News doesn’t work like that.

And unlike HBO, newspapers can’t possibly forgo advertising in exchange for subscription fees. (Not to mention that, as annoying as many online ads are, nothing on the web compares to the intrusive nature of commercial interruptions on TV, especially back in the pre-DVR era.)

I’m not pretending to be an expert on the details of exactly how newspaper companies should adapt. But you don’t have to be an expert to notice the obvious. Newspapers are losing millions of dollars. New, online-only publications, on the other hand, are operating at a profit. And there is a stark difference between the two: new online publications are lean and mean. They are small, flat organizations where most of the employees are producing actual content.

The primary problem with newspaper companies isn’t their revenue. It’s the size and scope of their operations. Again I say: mammals and dinosaurs. Simon, along with everyone else who thinks online subscription fees can save the newspaper industry, is effectively arguing that the world will change to support newspapers. The truth is that newspapers must change to adapt to the world. Just because the extinction of newspapers would be a tragic loss doesn’t mean it won’t happen.