economic crisis

Newspaper Readers Buy Papers for the Content

You'd think that would be obvious. Plus, the Walter E. Hussman Jr. Theorem
July 23, 2009

(Note: This is part three of a three-part post. Read part one here and part two here.)

I think it’s extremely unhelpful when new-media gurus like Mark Potts toss off posts saying newspapers don’t “provide value” and thus can’t charge for their product.

Here’s what Potts had to say about this the other day:

But one of the reasons that undermines the dream of charging for online access has not been much discussed, even though it’s critical. To charge readers for access, you’ve got to provide them with value for their money. And to provide value, you’ve got to produce a quality product. Painful as it is to say, there’s just not a whole lot of quality out there in newspapers and their Web sites.

Sorry, newspaper folks. You work hard. You do good work, indeed. But not enough of it. In today’s hotly competitive environment, to provide real value to readers, your work has to really stand out. It has to be top-notch—not occasionally, but consistently. It has to inform, entertain, enlighten and provide a real service, earning its keep day in and day out. That’s just not the case, even in the best newspapers and their corresponding Web sites.

To which I say: 48.6 million people* say otherwise. That’s the number who still buy newspapers every day. I’ll go out on a limb and say they’re not stupidly paying for something that doesn’t give them value. Oh, and to stick up for my former industry: Newspaper folks can do without the condescension, thank you. You, too, Jeff Jarvis. They get it. No amount of hire-me-to-do-a-speech New Economy platitudes are going to fix things in the real world.

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Many newspapers suck. They deserve to go. But “even the best newspapers and their corresponding Websites” don’t “inform, entertain, enlighten and provide a real service” consistently, as Potts claims? This journalism critic vehemently disagrees.

Another critical point is that the NYT online-only plan I wrote about in the previous post isn’t the only possible benefit of a paywall. There’s another road to take based on what I’ll hereafter call the Walter E. Hussman Jr. Theorem, something that’s near and dear to my ink-stained heart. That is, that newspapers that give away their content online incentivize their paying print subscribers to quit subscribing. As I’ve said many times, why would you want to pay $770 a year for The New York Times when you get the same thing (with video and podcasts and blogs) online for free at its website? It’s an insane way to run a business.

Hussman is the publisher of the Arkansas Democrat-Gazette, one of the best metro dailies in the country and one that has resisted the give-away-your-product-for-free siren call by charging for its website. While everyone else around it is collapsing, the Democrat-Gazette’s circulation has been pretty much steady over the past decade (guess whose else has? The paywall-protected Wall Street Journal).

It’s had newsroom layoffs, sure, but not nearly as many as everyone else, and not much more than you’d see in a cyclical advertising downturn in an economy as bad as this one. The secular change roiling the newspaper industry is roiling the Democrat-Gazette less.

Hussman doesn’t get much money from his website subscribers, who only number about 4,000. What he’s concerned about is protecting his profitable product: the print newspaper. Forget about the unprofitable product—the web—until someone figures out how to make money there. By charging online he drives readers to the print newspaper. Why would you intentionally drive readers to a deeply unprofitable business at the expense of your profitable one, on the hope that somehow maybe down the line the unprofitable business will go into the black? That’s what Hussman the businessman can’t figure out. Neither can I.

Now, people like Potts have argued (unconvincingly) that the Democrat-Gazette is a special case. They’ve also said it may be hurting itself in the long run by remaining a print-focused operation.

The latter is a fair criticism. I’d only say that I imagine it wouldn’t take long for the Democrat-Gazette to shift its readers online in the event somebody figures out the magic profit trick for newspaper websites.

Lastly, I’d like to push back against some memes that have taken hold about what newspaper subscribers actually pay for, ones that cloud thinking through the online-subscription issue. I’ve been going back and forth on Twitter this morning with some folks while trying to write this post and thought they might provide a window into this.

One idea is that subscription revenues have to be enough to replace the salad-days ad revenues. That’s just not true, as I showed in the previous post. Ridding themselves of the massive costs of printing and distribution means they’ll need far less revenue to make a go of it.

On another front, one I see far more often, Jay Rosen tipped me to this smart post by Jeff Sonderman at News Futurist. But smart doesn’t necessarily mean right.

Sonderman says that since at least 1830, newspaper readers haven’t paid for the content in their newspapers, which has actually been subsidized by advertisers. I hear this all the time. But it’s just not true.

The problem with this idea is that money is fungible. The revenue that newspapers bring in from subscriptions and newsstand sales goes into one big pot with the revenue they bring in from advertisements. Similarly, the cost of the newsroom goes into one big heap with the cost of the pulp, the presses, and the deliverymen.

To quote myself from Twitter, you could just as easily say that subscribers pay for the journalism and advertisers pay for the print and delivery.

Which actually makes more sense to me. After all, what newspaper subscriber subscribes to the paper because they want flattened-out tree pulp or because they want a bag thrown on their porch every morning? They subscribe because they want the news (and the ads of all things, unlike their Web counterparts!)— the information and content that comes on that pulp and with that delivery. Certainly part of the subscription price is paid for the convenience of not having to go down to the newsstand, but the point stands.

The larger point of Sonderman’s piece is actually more complicated: That it’s marginal costs (bear with the econ-speak for a minute) that determine how much subscribers will pay for news. Since marginal costs (what publishing an additional copy or, online, piping news into one other readers’ innertubes costs) are zero online, that’s why news is free online.

I say news is free online because news publishers made the idiotic decision not to charge for it fifteen years ago, what Alan Mutter calls the industry’s Original Sin. More important, though, marginal cost may be zero online, but that matters little if you don’t have a product in the first place. Producing that news content is labor-intensive; it costs a lot of money. I’d argue the total cost of the product is what matters here, not the marginal cost.

After all, no matter what info-wants-to-be-free types say, you can’t get the same content you get from The New York Times anywhere else. You might get the same Obama-pardoned-a-turkey-yesterday story, but you’re not going to get the quality of writing and editing, the scoops, the curation of the content, all in one well-presented package.

The metro dailies are a harder case. Their gutted circulations and ad revenues have forced them to shred their newsrooms. Most are shadows of their former selves. As David Simon points out in the latest print issue of CJR, the Baltimore Sun, for instance, had a 500-person newsroom at its peak in the 1990’s. It has just 160 today.

Will enough Baltimoreans pay online to float its newsroom? I don’t know. Again, the AP is a lynchpin here. Forcing its members to charge online would make this much more likely to succeed.

What I do know is it won’t hurt to try. Following their current “strategy,” papers like it are going to go broke soon anyway.

You might as well throw a Hail Mary (and say a few while you’re at it) when you’re down three touchdowns in the fourth quarter.

All this is not to say that I don’t think there can be viable ad-only news organizations online. Clearly there are and will be more in the future. I just don’t see how it works on the scale of a metro newspaper. If newspapers go out of business, something else will spring up to take their place. Maybe whatever it is will provide better coverage.

Or maybe it won’t come close. That’s one long ball I don’t want to throw.

* corrected from 42.8 million to include evening-paper circulation

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.