How can news “papers” make money on the web?

In this second part of a COMtalk series about how media can stay profitable online, we ask the crucial question of some old-line, forward-thinking print journalists.

By Corinne Steinbrenner

Media experts predict the future of newspapers won’t include paper at all. The future of newspapers (or, more accurately, of news organizations that have historically distributed news on paper) lies online.

But while newspaper audiences are moving to the Web, the advertising dollars that have traditionally supported the industry are not. Newspaper executives across the country are struggling to build a profitable business around their growing online audiences, and no consensus has yet emerged as to which revenue models will work best. Many in the industry remain confident in the advertising and subscription revenues that have sustained them for decades, while others believe only radical change can save the news business.

Faith in Advertising

Print advertising space in Boston is relatively scarce, with slots available in the Boston Globe, the Boston Herald and a handful of other publications. The supply of advertising space on websites that Bostonians might visit—from Google to Facebook to RedSoxStats.com—is practically unlimited. The contrast between paper scarcity and digital plenty helps to explain why advertisers are willing to pay far more for ads in the printed Boston Herald than for ads on BostonHerald.com. Newspaper revenue figures across the country reflect this fiscal reality—according to the Newspaper Association of America, online ads account for just 10 percent of total ad revenue for newspaper companies.

Despite the dismal advertising picture, says Mark Jurkowitz (’75), “newspaper people are not giving up on the concept.” Jurkowitz is associate director for the Pew Research Center’s Project for Excellence in Journalism (PEJ), which recently surveyed newspaper executives about the revenue models they’re pursuing. The survey results, he says, show that newspaper executives are still largely focusing their online money-making efforts on advertising.

Jurkowitz suspects this continued confidence in ads is based on a belief that better online advertising models will eventually arrive. But, he says, “I don’t think anyone anticipates online advertising will ever become what display and classified advertising was for the traditional newspaper industry. It’s never going to work that effectively.”

COM Dean Tom Fiedler (’71), former executive editor of the Miami Herald, isn’t surprised by the PEJ’s findings. Advertising, he believes, “is ultimately a fairly stable and viable model.” He also agrees that online ads may never pay as well as print ads did—but he doesn’t think they need to.

“When you look at the economics of publishing today,” says Fiedler, “60 to 65 percent of the costs of a newspaper business come from what’s referred to as the manufacturing side of the business”—printing presses, paper, ink, delivery trucks, drivers, gasoline, etc. “The costs involved in that manufacturing process are extraordinary, and increasingly unnecessary.” Quit printing and delivering the physical newspaper, he says, and you only have to bring in 35 percent of the revenues you need today.

But with roughly 90 percent of newspaper revenue still coming from print advertising, newspaper companies can’t afford to stop the presses. “That’s the conundrum,” says Fiedler. “They make too much money in the old distribution platform to let go of it.”

Newspaper websites are making real money—“the Boston Globe website makes tens of millions of dollars in revenue”—Fiedler says, but online revenues are not yet high enough to cover the target 35 percent of a news organization’s budget. “Somehow you’ve got to find a way to get the online advertising revenue side up about 3 to 3.5 times what it is now.”

To have any hope of doing this, he says, news organizations have to protect their brands—they have to insist that their online products retain the integrity their print products have long been known for. Perhaps then they can convince advertisers to pay higher rates for access to their discerning and intelligent audiences.

Apple’s new iPad and other e-readers might provide opportunities for higher ad revenues as well. “People go to a website and they can’t wait to delete the ads or have them blocked,” Fiedler says. But encountering ads on the iPad can actually be a pleasurable experience, much like reading the glossy ads that appear in magazines. Often, he says, “we read those ads with the same interest with which we read the content.” If e-readers can duplicate the magazine experience, advertisers may be willing to pay higher rates for ads that appear in the e-reader version of a newspaper.

Combine these improved rates with other supplemental income streams—including some form of subscriptions—and eliminate the manufacturing costs, Fiedler says, “and I’m confident we’ll get there.”

Putting Up Pay Walls

Journalism Department Chair Lou Ureneck, who was editor of the Portland Press Herald in Maine when that paper first ventured onto the Web in 1995, shares Fiedler’s belief that newspapers can transfer their traditional income sources (advertising and subscriptions) online, but he sees subscriptions as the stronger of the two revenue generators.

“Advertising is important,” he says, “but it can’t be the principal source of revenue if we’re going to have the kind of news organizations that we’ve had in the past.” Companies trying to sell their products today are finding alternatives to traditional advertising, he says. “Advertising as a share of GDP is flat or diminishing, so the whole concept of advertising is not the business it once was.”

“I personally think that the subscription model is the way to go,” says Ureneck. Worldwide and increasingly in the U.S., he says, media consumers are taking on a larger share of the cost of their content. Think cable television and satellite radio. “I think that people are going to have to pay for their information,” he says, “and I think that people will be willing to pay for their information.”

News consumers, however, are not yet displaying this willingness. Jurkowitz points to a recent PEJ survey that asked people what they would do if they encountered a pay wall at their favorite news site. “Eighty-two percent of the respondents said they would go somewhere else,” he says. News executives seem to be aware of this resistance but hopeful they’ll be able to break through: PEJ data shows that only 15 percent of newspaper executives are actively pursuing subscription pay walls, but a full 58 percent are considering them.

Ureneck admits online subscriptions will be a tough sell. The pitch to readers, he says, will need to rest on the notion that the reliable information news organizations provide empowers them as citizens and consumers and is, therefore, worth paying for.

News organizations must also get the subscription formula right, he says: Don’t expect people to pay for “commodity news” that they can get anywhere, and don’t make subscription charges too frequent or too large. Asking for too much at once, says Ureneck, is a mistake newspaper companies made years ago when they switched to charging subscriptions to credit cards. “They would charge people every six months, so people would see this enormous payment, which was an illusion, but nonetheless it looked like a big number.” At the other end of the scale are micropayment systems that ask readers to make a small payment for each article they read. With these systems, he says, “there’s a certain friction every time there’s a transaction, and it would seem to me that the friction gets in the way.”

If news organizations can convince people to pay for online access to news, Ureneck argues, it won’t be the first time consumers will have begun paying for something they once got for free. “When I was growing up, TV was free,” he says. “When I was growing up, water was free.” Since then, he says, people have been trained to pay a monthly fee for cable and $2 for a bottle of water.

New Territory

Not everyone shares Fiedler’s and Ureneck’s faith in newspapers’ traditional revenue streams.

“The price of advertising is plummeting, and it will only to continue to plummet . . . so the first thing you have to do is get out of the old advertising business,” says Paul Gillin (’79), former editor of the technology weekly Computerworld, self-proclaimed newspaper lover and proprietor of the blog Newspaper Death Watch. Online subscriptions, he continues, only work in two instances: when they’re built around fanaticism or finances. ESPN generates revenue from its online content by tapping into the insatiable appetites of super-fans. The Wall Street Journal and Consumer Reports successfully charge for their online content because the information they provide helps people make or save money.

To survive in the digital age, Gillin says, newspapers have to look beyond the ads and subscriptions that have thus far sustained them. “What they have to do is hard,” he says. “It involves changing the whole revenue structure of the business.”

Gillin, a frequent speaker at marketing- and media-related conferences, proposes that news organizations expand the marketing services they offer to local businesses far beyond providing space to place their ads. News organizations, he says, should become marketing consultants and marketing service providers to their local advertisers.

Gillin suggests a raft of services news organizations could provide—from event management to loyalty programs—and many of them involve the Web. To begin with, he says, news organizations can help their advertisers create better print and online ads. “Many local merchants have terrible ads,” he says. “They don’t know how to use graphics, how to word their offers, how to rotate their offers, how to do custom landing pages. News organizations could help them craft programs that deliver better response.”

Most local merchants have awful websites too, says Gillin, and news organizations should seize the opportunity to build websites for their local advertising customers—sites that are attractive, search-engine optimized and have e-commerce and social media capabilities.

News organizations can do more for promoters of local events too, says Gillin, by providing online ticketing services. “Have you ever bought a concert ticket on Ticketmaster? You know how painful it is, and then they slap a $9 fee on it. But you pay it because the alternative is to schlep down to the box office and stand in line,” he says. “Pretty good business for Ticketmaster. News organizations could do that as well.” When an event comes to town, says Gillin, the local news organization can provide not only marketing services to publicize the event but also the e-commerce engine that automates online ticket sales.

To those who argue that newspaper companies won’t want to enter web development, ticket brokering and other such businesses because they’re too far afield of their core mission and competencies, Gillin essentially says: Tough luck.

“Do they have the choice of saying what they want to do? When you’re talking survival, I don’t think want is an active term,” he says.

He also argues that shifting to a service model is not without precedent: computer companies IBM and Hewlett-Packard once derived the majority of their revenues from computer hardware; now that such hardware is considered a commodity, both companies are making ­millions as service providers.

Survey data from the PEJ suggests newspapers may be willing to consider at least some of Gillin’s proposals. While advertising topped the list of actively pursued revenue streams in the PEJ’s survey, “non-news products” came in a respectable second.

Newspaper executives also expressed interest in local search advertising (something Gillin also champions), niche news products and transaction fees from online retail activity. On the flip side, they showed little interest in seeking donations, tax relief or fees from news aggregators or internet service providers. The takeaways from the survey, says Jurkowitz, seem to be that newspaper executives want to find a commercial model to support their business—they don’t want to be propped up by the government or wealthy donors—but they don’t yet know what that model is.

The answer may lie in a broad arsenal of revenue sources rather than one magic bullet. Jurkowitz notes a new willingness among those on the business side of newspapers to experiment. “I think people are really trying everything,” he says, actively searching for the combination of digital revenue streams that will keep them in the black.