Wednesday, January 20, 2010

A first reaction to the New York Times' plan to charge for some web access

The decision to charge for "frequent web access" to the New York Times web site is almost certainly not intended to generate enough revenue from readers to cover the newspaper's costs.

Instead, the plan to offer access to a few articles free, but charge a fee for more extensive access appears to have three other goals. First, stem the loss of print readers who have shifted to the free web site, second, prepare for distribution over mobile devices such as Apple's new Tablet computer, and third, gather the kind of detailed information about readers that can make the paper more competitive in advertising markets.

The article hints at some of this saying:

Company executives said the changes would wait another year primarily because they need to build pay-system software that works seamlessly with and the print subscriber database.

Why print readers still matter

Subscriptions are nothing to sneeze at, but U.S. print newspapers have for decades depended on advertising to generate more than 75 percent of their total revenue. Especially telling, industry statistics show the average price of subscriptions has not increased after adjusting for inflation.

So it's not realistic to expect any general interest newspaper will generate significant amounts of reader revenue in the far more competitive market for news online.

The Times will not charge print subscribers for access to the web site. This suggests the paper has recognized that loyal print readers will move to the web if they can get free access there.

And print subscribers are still far more valuable than web readers. The advertising revenue per subscriber in print is almost certainly much higher than ad revenue per reader on the web, so the Times needs to stem this loss.

Betting on mobile distribution

As for distribution on mobile devices, the Times is probably hoping consumers find electronic readers preferable to the smaller screens on mobile phones, and will therefore pay a bit to have the newspaper delivered in a superior format.

The companies that make these devices, Apple, Amazon, and others, are probably hoping semi-exclusive access to the Times will attract buyers for their devices. Of course, if this works those same companies will be able to extract a hefty fee from the Times for the privilege of appearing on their device.

The real goal of the Times is probably access to user information collected by Apple, Amazon, et al. An example is information about a user's location that comes with access to wireless networks that readers use to download newspapers and books. I will be surprised if Apple's device does not include GPS to improve the quality of tracking data (Yes, I know consumers also use GPS and might turn it on and off).

Knowing someone's reading habits and where they go to read is, of course, the kind of information advertisers crave because it can be used to make a precisely targeted pitch for a product.

Gathering reader information on the web

The Times will also be using its website to gather equally detailed data about its most loyal readers, those willing to pay for access. Just imagine the advertising-friendly statistics that might generated when information from print, the web site, and mobile distribution is combined.

Monday, April 6, 2009

New York Times threat to close Boston Globe prompts some weird criticism

Six years ago the New York Times Co. paid more than $1 billion for the Boston Globe, bringing two of the most respected newspapers in the United States under common ownership. But this marquee purchase is ending badly as the Times Co. threatens to close the Globe if its unions fail to make major cost concessions.

This threat has stirred understandable shock, given the Globe's reputation as a newspaper dedicated to journalism that represents the profession's highest ideals. The first order of business for those not directly involved might be considering the best way to fend off the threat, even though some believe it's just a hard-nosed negotiating ploy.

So, it's strange to see the folks at the Huffington Post -- who routinely attract audiences by featuring stories from newspaper web sites -- coming to the conclusion that this is the wrong moment for the Globe to launch a marketing campaign.

This story by the Globe's staff touches on the underlying problem, the risk that more and more people in Boston will decide the paper is not necessary to their lives. This marketing campaign that the Globe launched today shows executives are trying to address that problem.

Of course, marketing alone will not save the Globe. The underlying problem is a large debt and a steep decline in advertising revenue that makes it impossible for the Times Co. to continue paying off the debt.

But it's far from clear that advertising revenue will come back to the Globe when the recession finally ends.

Ad revenue follows readers, not sentiment, and readers in markets like Boston are shifting to new, more convenient media to access the news. Even if readers turn to the Globe's website for news, ad revenues will be much smaller because competition is more intense on the Internet.

Whatever the marketing campaign costs, it probably won't decide the Globe's immediate fate one way or the other. But the last thing the Globe can afford right now is to reduce efforts to attract readers and advertisers.

Friday, February 27, 2009

Some newspapers are failing, but is that a reason to panic?

News that the 150 year old Rocky Mountain News will publish its last edition today is just the latest grim tale about prominent United States newspapers desperately seeking buyers, filing for bankruptcy, or struggling with quarter after quarter of declining revenue.

All of this so unnerved the American Society of Newspaper Editors that it canceled its annual convention saying '"the challenges editors face at their newspapers demand their full attention.”'

The newspaper industry's problems are real, but the causes vary from newspaper to newspaper and so do the implications for the industry's survival.

The closing of the News is likely to be followed by the closing of the Seattle Post-Intelligencer, leaving each of those cities, like most cities in the United States, with a single newspaper. This is sad, but not surprising to economists who have long understood that exempting from anti-trust laws newspapers in Denver, Seattle, and a handful of other cites only delays the inevitable.

The exemptions, called Joint Operating Agreements, are granted by the U.S. justice department if competing newspapers in the same market can prove that one would fail without the agreement. These agreements allow the newspapers to save money by combining sales, production and other business operations, but they must continue operating separate newsrooms.

Newspapers argue that JOAs benefit to their readers by preserving two editorial voices with diverse views and information about the issues of the day. But Robert Picard at The Media Business points out that newspaper companies had other reasons to seek these arrangements:

Joint operating agreements have been seen by many in the industry as a way of keeping two newspapers operating within the same city, but JOAs have been a continual failure since they were authorized in 1970. The biggest problem is that JOAs ignore the basic economics of newspaper publishing and merely provide benefits from a newspaper antitrust exemption that allows collusion on advertising and circulation prices, market division, and other acts prohibited by federal law. Those benefits were never enough to “save” papers in the long run, but allowed publishers to gain a limited period of time to try to squeeze more money out of the operations.

The failure of the News was probably inevitable, and I expect the Post-Intelligencer will soon suffer a similar fate.

The News' demise was certainly hastened by the loss of audience and ad revenue to new forms of media exacerbated by the general economic collapse. But even though the loss is sad, it doesn't have much to teach editors at other newspapers who are staying home this year as they try to sort their way through all of this.

Wednesday, February 18, 2009

Misunderstanding the market for online news

The number of monthly visitors to major newspaper web sites increased significantly during the recent election, and then appeared to decline according to this chart compiled by the Nieman Foundation, which promotes journalistic excellence.

But by concentrating on newspapers, the chart paints a misleading picture of digital competition to attract audiences interested in news.

The New York Times has the largest number of visitors in the Nieman chart, but its website ranked 5th among Internet news sites in October 2008 behind MSNBC, CNN, Yahoo News and AOL. The Times had about 20.3 million unique visitors that month, barely trailing AOL but far behind the other three sites. Yahoo News was in third place with 37.3 million unique visitors, so the Times would have needed 85 percent more visitors just to catch up.

I don't have access to data for the entire period listed in the Nieman chart, but the October 2008 figures are probably representative of the real online market for news. Large newspaper web sites compete with broadcasters such as Fox, ABC, NPR and the BBC, and with Internet only sites such as Topix, Google and Yahoo news, or the Huffington Post.

There is some evidence of how this really works in the chart, but it's not explained. In July 2007 The Times, NBC, and MSNBC announced a deal to share political coverage on the web. One goal was to increase each company's audience for news.

Apparently, it worked. The Nieman chart shows a sharp increase in visitors to the Times site over the next three months. The increase resulted in a substantial lead over its nearest newspaper rivals that persisted through December of 2008.

Meanwhile, the October 2008 data shows election coverage by two of the Times' longtime print rivals -- The Washington Post and USA Today -- produced substantial increases in visitors to their web sites. But neither came close to matching The Times and its partners on the web.

The chart posted by Nieman reflects a wider mindset in the newspaper part of the journalism industry that just won't go away. The mindset is mistaken -- this is a different market, with different rules and different competitors, and it should always be talked about that way.

Monday, January 5, 2009

Remembering Barry Litman, who died Dec. 26

Prof. Barry Litman used to sit quietly in meetings of my dissertation committee, holding a document I had labored over for days, waiting for his turn. He always began with a few introductory questions to be sure I understood what was coming next -- a single, penetrating query that would send me back to the library to spend hours digging through books and journal articles in search of an answer.

The result was always the same. I learned something, usually more than just one thing, that was important and useful. Barry Litman made my work better. It wasn't just me. He made everyone's understanding of media economics better.

So it came as a shock to hear that Barry, 59, died Dec. 26 after battling cancer.

Barry was one of the first classically trained economists devoted to understanding producers of and audiences for newspapers, television broadcasts, and film. You cannot call yourself a student of media economics if you don't know his work.

Barry and a doctoral student completed the first study linking the quality of news to the financial performance of newspapers.1 He later helped update the fundamental model of newspaper competition developed in the 1970s to reflect three decades of changing technology and markets.2 He then took an overused, ill-defined buzzword -- convergence -- and gave it meaning by showing how people select news from different media based on differences in characteristics like speed of delivery, convenience, and quality.3

Barry developed a model predicting what will happen if people can't get reliable information from the media about urgent topics like birth control, showing they will instead assemble an understanding from whatever sources they can find.4

He identified a major flaw in the long line of studies examining diversity or its absence in media content, refuting the underlying assumption that there is an unlimited demand for diversity.5 Barry offered a more realistic model showing that the desire for diversity is balanced against the desire for other characteristics of content, always within the limits of available time for reading, watching and listening.

Barry helped examine the creation of the Fox network, showing how a confluence of regulatory and economic factors made possible the enormous gamble for News Corp.6 The study is a valuable reminder that what now looks like a taken-for-granted success was anything but that at the time. In another study, Barry and his co-authors showed why networks prefer programs that are predictable, making truly innovative television the exception, a finding that holds up well in the cable universe.7

Barry was a professor at Michigan State University for more than 30 years, one of a handful of faculty who made the College of Communication Arts & Sciences the center of gravity for understanding media economics.

This spring, as always, I will teach a graduate course where Barry's work appears multiple times. I like to quote Barry because it always makes me sound smart. This semester won't be nearly so much fun. Mostly, I'm going to think about what we've all lost.

Barry's obituary is available here, and an announcement from the college can be read here. A Facebook page to post memories of Barry can be found here.

1Litman, B. R., & Bridges, J. (1986). An economic analysis of American newspapers. Newspaper Research Journal, 7(3 spring), 9-26.

2 Bridges, J. A., Litman, B. R., & Bridges, L. W. (2002). Rosse's model revisited: Moving to concentric circles to explain newspaper competition. Journal of Media Economics, 15(1), 3-19.

3 Litman, B.R. (2006). The convergent society and the media industries. In Bridges, J. Litman B. R., &Bridges, L.W. (Eds.), Newspaper competition in the millennium (pp.23-32). New York, Nova Science Publishers.

4 Litman, B. & Bain, E. (1987). Information search and banned product advertising: An indifference curve approach. Current Issues and Research in Advertising, 39-59.

5 Litman, B. R. (February 1992). Economic aspects of program quality: The case for diversity. Studies of Broadcasting, 121-56.

6 Thomas, L., & Litman, B. R. (Spring 1991). Fox Broadcasting Company, why now? An economic study of the rise of the fourth broadcast "network." Journal of Broadcasting and Electronic Media, 35(2), 139-158.

7 Litman, B. R., Shirkhande, S., & Ahn, H. (2000). A portfolio theory approach to network program selection. The Journal of Media Economics, 13(2), 57-79.