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Whistling Past the Graveyard
Posted by: Dale Franks on Tuesday, May 08, 2007

Walter Hussman is publisher of the Arkansas Democrat-Gazette, a newspaper that does not offer free news on it's web site, instead requiring a monthly subscription to access the paper online. In the Wall Street Journal, another subscription-only online paper, Mr. Hussman announces that offering free news online is a bad business decision for newspapers.
The Wall Street Journal Online now has 931,000 paying subscribers, more than the paying subscribers to all but three U.S. newspapers: USA Today, The Wall Street Journal and the New York Times. Our newspaper, the Arkansas Democrat-Gazette in Little Rock, does not offer our news for free on the Web site. We offer free headlines. On a few selected stories, we offer a few free paragraphs, designed to get people to read our paper. We also offer free classifieds.

Recently I had the opportunity to compare our Web site policy with the free news policies of other papers. For the six months ending March 31, 2007, the newspaper industry's circulation was down 2.1% daily and 3.1% Sunday. By contrast, the Arkansas Democrat-Gazette's circulation was up 1.24% daily and up less than 1% Sunday.

I was able to make another interesting comparison, too, with the Columbus, Ohio, Dispatch. Columbus and Little Rock are both state capitals. Columbus is a larger market, and the Columbus Dispatch's circulation of 217,291 compares with 176,172 for the Arkansas Democrat-Gazette. Up until Jan. 1, 2006, both our paper and the Columbus Dispatch offered news content only by subscription. We even charged the same price, $4.95, for an online monthly subscription, and both of us offered the same style electronic editions.

But Columbus dropped its subscription model on Jan. 1, 2006, and began offering most of its news for free. Its Web traffic and revenues certainly increased. But what happened to its paid circulation?

The six months ending Sept. 30, 2006 was a good comparison, since it compared six months in 2006 when the Columbus Dispatch had free news on its Web site compared with six months in 2005 when it did not offer free news. The Columbus Dispatch's daily circulation was down 5.8% while Sunday was down 1.1% for the six-month period. This compared with our loss of less than 0.4% daily and 1% Sunday.

When I looked at this comparison with Columbus, as well as the newspaper industry's larger losses, it didn't encourage me to change our Web policy to free news.
First, I'm not sure the comparisons between the Wall Street Journal, Arkansas Democrat-Gazette, and Columbus Dispatch are entirely valid. The WSJ is the nation's premier business daily (Yes, I know all about Investor's Business Daily, but the IBD simply isn't required daily reading in the business world, and the WSJ is). And unlike Ohio, where metro dailies from Cleveland and Cincinnati are available, the Democrat-Gazette is essentially the only statewide paper available in Arkansas. It may very well be that this divorces the WSJ and ADG somewhat from the tension between online and paper that exists among other papers. If you want the standard business newspaper, you have to pay for the WSJ. If you want in-depth coverage of local issues in Arkansas, you need the ADG. Moreover, maybe high-speed internet isn't just as generally available in Arkansas as it is in Ohio, making paper distribution more necessary.

There may be any number of reasons why, despite having similar circulation numbers, direct comparisons between Ohio and Arkansas are faulty. For instance, are more people leaving Ohio and more people moving to Arkansas? If so, then the ADG may see increased gross circulation, but the per-capita reach may be falling while the per-capita reach of the Columbus Dispatch is rising. A bald comparison between two papers, absent a whole host of accompanying demographic data, simply doesn't tell us much.

Still, Mr. Hussman correctly frames the central problem.
The Inland Cost and Revenue Study shows that newspapers will generate between $500 and $900 in revenue per subscriber per year. But a newspaper's Web site typically generates $5 to $10 per unique visitor per year. It may be that newspaper Web sites as an advertising medium, and free news, just can't generate the revenue to sustain a valued news operation.
But, is the solution to that problem to try and make subscribers pay for online news? Mr. Hussman clearly believes it is, but I'm not so sure.

A paid subscription model really only works in two scenarios. The first is if general news is available for free, and you offer specialized content that isn't generally available elsewhere. The second is if news isn't freely available. If news is generally available for free, however, and you don't offer any specialized content that readers want to access...well...then, you're up a creek, aren't you?

And, for better or worse, news is generally available for free. For now, both the WSJ and, apparently, the ADG can make subscribers pay for online access, presumably because they are in a position to offer content that isn't readily available elsewhere. If so, that puts them in a nice position, but not one that necessarily applies to most other newspaper outlets.

What media leaders like Mr. Hussman should be doing is paying less attention to what is going on right now with the online world, and what will be going on 10 years from now. Mr. Hussman—and media leaders in general—are reacting to the Internet. They're concentrating on keeping their heads above water as the changes come at them. But what they need to do if they expect their outlets to live is to plan proactively and strategically for survival in a world in which high-speed internet access, and book and news readers—not just computers as we know them now—are ubiquitous, and news is available online, for free, to any one who wants it, practically anywhere at any time. Indeed, we already have that, in its infancy, with cell phones that offer access to the internet.

Can daily print publishing even survive in that kind of environment, where newspaper news is stale by the time the paperboy launches it at your porch the next morning?

Without unique content, it's hard to see how.

Which raises another interesting question about the economics of news-gathering: how do you fund a first-class news organization if online subscriber revenues are 1% of what traditional dead-tree revenues were? One obvious answer, of course, is to ensure your online reader base is 100 times your traditional subscriber base. Instead of 100,000 dead-tree readers, you need 10 million unique online readers. That's probably a tall order for local papers like the ADG.

The second answer, then, is to increase per-capita reader revenue somehow. How to do that is problematic as well, though, in an online environment where classified ads—a prime source of print revenues—can be obtained for free in all sorts of places, and where small banner ads on the web pages themselves can't command an exorbitant price.

The bottom line is that if you want to fund a news-gathering organization, you have to generate the revenues to do so. And, as far as I can tell, no one in the media business is thinking about how these questions will be answered in the next decade. Like Mr. Hussman, they are thinking about how to make revenue—somehow—in the current environment that will enable them to fund their paper operations.

But, is a paper operation really going to be necessary in 10 years? How much will it cost to produce news if you no longer need a printing and distribution network? What if a newpaper kiosk simply becomes a little wi-fi computer kiosk into which you drop a quarter, turn on your wi-fi enabled book reader, and download the "paper" to it?

These are tough questions, and media managers need to start finding ready answers for them. At the end of the day, I don't think paid online subscription is going to be a viable answer for most newspapers, unless nearly all of them embrace it. And, as a practical matter, for national news, I don't really see how that will happen.

As long as online outlets, including TV and radio stations with web sites, have access to the AP feed, national news is going to be a commodity for which charging a premium will be nearly impossible.

For fifty years, newspapers have been under increasing competitive pressure from broadcast news of all types, and readership has continuously declined. The internet is magnifying that competitive pressure immensely.

And I don't think Mr. Hussman's simple answer of making people pay for online news is going to work over the long term, if everybody doesn't do it. And if they do pay, I'm not sure a subscription model, as opposed to an on-demand pay model, will be viable.

The newspaper business is on the edge of a second-order change, i.e., the market environment is becoming fundamentally different. Mr. Huffman's response to this change is to try and ignore it, and extend the traditional revenue model to the new environment. At best, that's a temporary stopgap.

It may very well be that the local paper may have to become just that: Local. Concentrating on local and statewide stories that the nationwide outlets ignore. That means ignoring the "big news" and having smaller news organizations that concentrate on local news, and charging readers to access it. Assuming there are enough people interested in local issues to do so, of course.

But, that still leaves open the question of who, exactly, will be gathering and reporting national news. If national news is essentially free to the end user, who is going to pay for it to be gathered and reported? Will that become the domain solely of the big broadcast networks, who have broadcast advertising revenues to fall back on? Or will DVRs and Tivo-type viewing kill those advertising rates as well? Will it dwindle to some sort of pool coverage, providing the same reportage to everyone?

I'm not sure the reality of the information age is truly appreciated by the current crop of media managers. I am sure, though, that the next decade will be full of interesting challenges for traditional print media outlets.
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Previous Comments to this Post 

Good critique of an interesting article.

As Glenn R. points out in a related LA Times note, "hard news facts" is the killer ap for news orgs — all newspapers who are losing money should be firing their editorial writers and picking up good free opinion from the web. Blogs should be the death of paid opinion writers in newspapers.

Your questions should have led you into some speculation on possible, or possibly plausible, answers.

Like home-printing your own customized "Daily local - international news", or having a printing kiosk do so, including some ads.

Like a combined but abridged NYT or LAT or WaPo PLUS the local paper, sharing pages and headlines and revenues. Possibly combined with Yahoo or Google or MSNBC; possibly with other TV news. Where the printed edition is the most comfy reading, but also adds magazine style thoroughness to headlines and news paragraphs. (When will Pajamas News produce printed news pamphlets?)

Printed news, like books, is unlikely to disappear, but the national and international market for hard news reporting might not constrict as much more as the local markets for national news reports.

Typo alert: "If so, that puts them in a nice position, but one that necessarily applies to most other newspaper outlets."
is missing a negation, perhaps "doesn’t necessarily apply"
Written By: Tom Grey
A little history for those of you not from Arkansas. The origination of the Arkansas Democrat-Gazette came from the merging of two daily newspapers centered in Little Rock, the Arkansas Gazette (a morning delivered daily) and the Arkansas Democrat (an afternoon delivered daily).

Historically (from the 50s to the merge), the Democrat was just that - a newspaper with a decided bias toward the Democratic Party. The Gazette was traditionally the more liberal of the two and was unaligned in its party affiliation. (Note: You have to remember the party lines of the 50s - mid 70s in the South were opposite of today. The Democratic Party of the old South was decidely conservative in its leanings during the period.)

With the advent of the Orvall Faubus administration in the mid 50s to the early 60s, the Democrat fast lost readership to the Gazette who up to that time was regarded as a liberal upstart to the Democrat. That loss of readership continued into the 70s and the Democrat started losing money hand over fist until finally they were on their last legs and the Gazette bought them out and essentially merged the two papers into one.

But the Democratic leaning continued even with the transition of the Democratic Pary in the 70s and 80s to the liberal side of the politisphere. But now, being the only state-wide daily available throughout the state of Arkansas, they had a captive audience. And it remains so to this day.
Written By: SShiell
URL: http://
I agree with the Wall St. Journal article: free online news is a huge loser. The product used to cost money, then it becomes free- of course revenues are going to tank.

Some people will always take dead tree. It’s not going away. It’s definitely going to become just one niche in a system.

I think the ultimate answer is a tiered online system with very minimal content - headlines only - at free/cheap levels, and the best info being reserved for dead tree, at the highest price.
Written By: glasnost
URL: http://

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