Newspapers signal the end for free content

As newspaper groups announce alarming losses, publishers are under increasing pressure to make their digital offerings pay without alienating their vast online audiences.

Newspapers signal the end for free content

The internet has transformed the way readers engage with news. By migrating online, newspaper publishers have been able to exploit the dynamics of the web, building new audiences and becoming bigger international brands than print newspaper circulations would ever have allowed.

About 70% of the readers of both Mail Online and Guardian.co.uk are outside the UK, while in May, the combined online audience for The Guardian, The Times, The Daily Telegraph, The Independent, The Daily Mail, The Sun and The Mirror peaked at 8.47 million unique users worldwide.

Yet while the reach of online newspapers has rocketed, their financial returns are still rife with issues - not least how digital newspapers can expect to make money on a platform that until now has offered most of its content for free.

To date, some newspapers have backed a "build it and they will come" mentality, hoping that a comprehensive web presence will attract enough readers from around the world to generate substantial advertising revenue.

Others have tinkered with subscription models, putting content behind paywalls or introducing subscription fees. Yet this has only compounded how significantly less loyal online audiences are compared to traditional newspaper readers. Many newspapers have quickly discovered audiences are happy to jump ship and hunt for content elsewhere, rather than whip out a credit card to pay for it.

After more than a decade of trial and error, there are concerns that neither of these models is providing sufficient answers. The crisis is exacerbated by the recession, which is heightening the urgency to find a solution that will make up for the steep losses incurred by newspaper proprietors each year.

Newspaper insiders believe 2009/10 could be a make-or-break year for newspapers, with titles on both sides of the Atlantic suffering severe losses. In the US last year, newspaper ad revenue plunged $7.5bn, while the total UK newspaper sector is set to fall 26% year on year by the end of 2009, according to GroupM.

News Corporation sounded the alarm earlier this year when it announced plans to start charging for certain online properties - which could include The Sun and The Times - as early as next year. Describing the current model as "malfunctioning", News Corp chief Rupert Murdoch promised shareholders a new model that "maximises revenues and returns".

"There is no doubt the traditional newspaper business model has to change," he assured shareholders in May. "The inchoate days of the internet will soon be over."

His words have struck a chord with the rest of the industry. Titles including The Guardian, The Independent, The Times and The Sun are also reported to be looking seriously at charging, although few are yet to lock down how the arrangement is likely to work in reality (see box, page 22).

So why might charging work this time around? Signs suggest public appetite for paid-for content could now be more receptive than many of the fated trials of previous years. The rise of iPhone applications in the one-year-old App Store has helped the micropayment model begin to bite, while the continued success of mobile phones suggests an underlying willingness to pay for services of value.

And, after years of battling piracy, the music industry has reached a basic level of financial compromise, with the likes of iTunes facilitating micropayments and Spotify offering ad-funded content.

Can the newspaper industry follow suit? Michael Beecroft, head of digital trading at Mediaedge:cia Global, concedes: "In many ways the horse has already bolted, and trying to close the door on it now will be very tricky indeed."

If the industry is to fight back, it will have to pick its battles on what it can charge for and what it should offer for free.

Core to this argument is the free-to-access BBC website and Google News, which many buyers believe remain at the heart of why most newspapers are unable to charge for their news content.

"Up-to-the-minute information that is continually regurgitated on newswires is simply not sellable information," says Beecroft. "By contrast, the trusted opinions of a journalist have a perceived value and newspapers might be able to charge for this in the future."

Andy Taylor, associate press director at Carat, is sceptical: "The abundance of copy online means there isn't the value tag attached to the written word. Consumers know publishers are suffering and the introduction of payment models risks being seen as a money-making scheme, rather than an attempt to provide better-quality content and services."

But the fortunes of The Wall Street Journal and the Financial Times, which both charge successfully for content, suggest otherwise. In the UK, the FT started charging in 2002, but has refined its financial model in line with consumer trends. Since 2007, the model has been based on frequency. Options include free registration and subscription, dependent on the level of use.

Rob Grimshaw, managing director of FT.com, says: "Our previous model of ‘all or nothing' didn't reflect the way people access our site. Now we offer the chance to come into our shop, look at what's on offer, sample some of the goods, register and subscribe. It's a more intuitive sales pitch."

Grimshaw concedes the FT has enjoyed "good fortune" in the cash-for-news exchange, as it has not had to frantically chase the same numbers as mass-market papers, with more than 110,000 subscribers paying up to £207.48 a year.

"Our content is written for international decision-makers, a demographic where these are comparatively strong numbers," he says. In addition, subscription to the FT - like The Wall Street Journal - sits comfortably on a corporate expense account, offering content with a clear market value that companies are willing to pay for.

Those in a less fortunate position are quickly building up a weaponry of new media that they hope could become a revenue stream in the future. For example, the Telegraph is charging for its fantasy football and crosswords, while podcasts, blogs and videos have become standard infantry on most newspaper websites.

Many buyers believe the key is to implement a transparent, easy-to-use model that gives access to content with an "emotional rather than logical" connection to audiences. "There needs to be one payment model across publications, where you only have to log in once and can see your balance as you go along," Beecroft says.

Steve Goodman, managing director, print trading, GroupM, agrees: "Consumers need to be broached gently. Perhaps if you're charging small amounts to get things that are useful in specialist areas - such as Jeremy Clarkson's reviews of cars or specific high-quality video content - the charging model begins to look viable."

But there is little to suggest these moves will make up for the massive losses incurred by the news operations. Sources believe even The Guardian and The Observer are losing up to £40m a year, while The Times and The Sunday Times posted losses of £51m in their latest annual accounts.

The managing director of one national news­paper says: "Rather than looking to make paltry charges here and there, newspapers have to look hard at their existing business models and ask difficult questions about how to reduce that cost base in line with where the industry is heading.

"There are few industries that incur such extortionate costs involving daily printing, shipment and delivery - not to mention teams of journalists, production, editing and commercial staff. Until these costs are seriously addressed against the turnover of the entire business, newspapers will only compound their poor business case."

No wonder many believe newspaper publishers will have to be more imaginative in the way they approach the problem.

"Mainstream publishers have not looked outside their own sphere enough," says FT.com's Grimshaw, who believes this has led to "opportunities sailing into the sunset".

While the newspaper industry is adamant there is no instant fix-all solution, the severity of the issue means it can no longer just clock up audiences without sufficient returns.

Indeed, 2009 looks like a watershed year in the internet's evolution, with everything that was once taken for granted about online newspaper readership set to change dramatically.

But, having failed to convince audiences the first time around, can the second cash-for-content appeal be any more compelling?

E-readers: Could portable reading devices prove the silver lining for newspapers?

As display advertising dwindles and newspapers agonise over charging for content that was previously free, do portable reading devices offer a glimmer of hope? James Bromley, managing director of Mail Online, believes so.

"E-readers are set to bring digitally delivered news closer to the experience consumers are used to paying for," he says.

Leading the charge is Kindle, a platform for reading electronic books developed by Amazon, which recently launched Kindle DX, the largest version of its e-reader hardware that is suited for newspaper content.

Although the device is yet to launch in the UK, it has ignited interest among proprietors including DMGT, The Independent and the Financial Times, while Guardian editor Alan Rusbridger has hinted it could mark an "iPod moment" for the publishing industry. Rupert Murdoch has expressed concern about licensing issues, while the FT and The Independent are offering subscriptions to their newspapers on Kindle in the US.

Nearly all UK newspaper groups are believed to have had discussions about getting their product on Kindle when it launches in the UK later this year. Kindle's main competitor is the Sony e-reader, which launched in the UK last October, although it is yet to offer newspapers and magazines. Meanwhile, Plastic Logic is introducing its version of an e-newspaper reader - a lightweight plastic screen mimicking the look of a printed newspaper.

Andrew Walmsley, co-founder of I-Level, believes Plastic Logic's device could be a "game-changer". He says: "Until now, size, cost and fragility have played against the e-reader's position in the future of newspaper readership. But Plastic Logic's device is thin, light and compatible with wi-fi, Bluetooth, 3G and USB, making it easy to get content on and off the device."

Much of the take-up of e-readers is based on whether reports that Apple is looking to launch a tablet computer to compete with Kindle come to pass. If they do, the "iPod moment" for the newspaper industry might not just be the stuff of proprietors' dreams.

To charge or not to charge?

News International
Emboldened by the success of the fee-charging Wsj.com, Rupert Murdoch has set the tone in favour of online charging. Newspapers such as The Sun and The Times could be charging within 12 months, while The Sunday Times is reportedly set to launch a stand-alone subscription website within the year. A final decision over whether it will involve subscription or micropayments has yet to be made, although it is believed the outcome could shape the way the company charges for content.

Trinity Mirror
Trinity Mirror's total digital revenue increased 27.1% to £43.6m in 2008. But this also represented just 5% of the group total, at a time when overall revenue dropped more than £60m. Mark Hollinshead, managing director of Trinity Mirror's nationals division, says the company is "evaluating whether there is a feasible model for charging content". However, he maintains a payment model is more likely to work for niche content unique to the Daily Mirror, Sunday Mirror and The People brands than for generic news copy.

Guardian News & Media
Ratcheting up a record of 29.8 million unique users in January, Guardian.co.uk remains the leading newspaper website. GN&M managing director Tim Brooks says: "The free model has served the first chapter of the evolution of the internet extraordinarily well." Speculation on a transactionary future was heightened earlier this year when Carolyn McCall, chief executive of Guardian Media Group, suggested some of The Guardian's specialist content could become chargeable property in the future.

Daily Mail & General Trust
The parent company of the Associated and Northcliffe newspaper groups is also considering charging for content. James Bromley, managing director of Mail Online, says: "Free content will continue, but publishers, including us, will find increasingly innovative ways of charging for digital services."  Micropayment or specialist content such as supplementary celebrity coverage were among suggestions mooted by DMGT chief executive Martin Morgan earlier this year.

Telegraph Media Group
The Telegraph has focused on unifying its print and digital offering in recent years, with investment in online video and a range of rich content. It already charges for its fantasy football and crossword offers. TMG also looked to exploit mobile, initially launching a mobile site with a £5 monthly subscription service, but dropped the pay barrier last August. The Telegraph declined to comment, but issued a statement: "Our strategy is to continue to grow our audience and ensure our content is available to as many users as possible, while also maximising commercial digital opportunities."