Are you willing to pay to read about the Reds?
Can Papers End the Free Ride Online?
By KATHARINE Q. SEELYE
Published: March 14, 2005
Consumers are willing to spend millions of dollars on the Web when it comes to music services like 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 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 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 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 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.
As the battle for advertising dollars intensifies, newspapers are looking for new ways to make money, including charging the visitors to their Web sites.
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 - 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."
So 'zoners, what do ya' think? Would you pay for the online edition of the Cincinnati Enquirer or Dayton Daily News or the Cincinnati Post to get their account of the Reds each day? Just curious.