The Problem
The old press model of paperback sales and ads no longer works. It has been picked apart by the loss of classifieds to online networks (craigslist) and falling sales, as people flock to online content. There will always be a need for the news, but the revenue being generated is not sufficient for the journalistic standards leading content creators are trying to provide. In an attempt to increase revenues and reverse the course of decline, News Corps. CEO Rupert Murdoch has announced pay walls on all their online content. In this post, I look any precedence to this and whether a pay wall is a practical step to cut their losses.
Precedence
The New York Times has previously attempted throwing up a pay wall around columnist content, only to find their readership diminish, stock plummet and the need to reverse their decision, abandoning the strategy.
At the same time the Huffington Post was created, recently becoming the most linked to blog online, with over 22 million visitors a month, many of whom were likely readers that jumped ship from the New York Times due to the new pay wall cost model.
Perhaps though the best example to look at would be the ever smaller record sales of the music industry. The sale of CD’s is down by about a half since it’s 1999 high and only set to decrease. The records industry was slow to react to the disruptive effects of the Internet and tried to impose paid for music only long after the concept of free had caught traction amongst the web savvy. Now the industry finds itself on the defence, loosing sales and distribution leverage to i-tunes and promotional leverage to blogs (to be discussed in a latter analysis of the democratisation of music). Instead of innovating, the industry went after the users in legal tangles whilst sales continued to fall.

In a similarly precarious position, news organisations are now desperately reaching for the same strategy adopted by the music bosses.
WHY People will not pay (enough) for news
Murdoch’s papers will be able to generate revenue for subscriptions, just as they have from advertising, but it will not be enough. User’s with access to news aggregate services such as Google News, as well as the availability of high quality news content from other portals, such as the BBC, means attention will turn elsewhere.
‘if a disruptive competitor can offer a product or service similar to yours for “free,” and if they can make enough money to keep the lights on, then you likely have a problem’.
The journalistic content of the WSJ and Financial Times are superior to many other services offered by competitors, but not to most readers when price point is considered. This means that in effect Murdoch’s news empire will be taking a step backwards against it’s competition, once a pay wall has been imposed. More than anything, the fact that News Corps websites will charge for content is a sign the news industry is running out of options.
The online advertising model has not worked for the industry, as advertisers are not as attracted to more open ended advertising, when they can target specific verticles through search engines (what would you advertise for next to an article regarding the war in Afghanistan?)
Why Google and users should care
As Eric Schmidt, Google’s CEO, wrote in a letter to the WSJ last year ‘a crisis for news-gathering is not just a crisis for the newspaper industry. The flow of accurate information, diverse views and proper analysis is critical for a functioning democracy.’
Towards the end of last year Rupert Murdoch of News Corp attacked Google, under the pretense that news aggregate services who pay nothing for content and are guilty of ‘theft’, failing to recognise the pivotal role Google plays in bringing users to its website (Google redirects 100,000 users a minute through their Google News service to news websites.)
In turn, as one google employee told me when I visited their offices in London ‘the problem’s that we don’t create the high quality content they do, we simply index it for users to find.’ Without search engines, people will not find the content, without the content there is nothing for the news aggregation services to find.
What the future holds
Blaming or going up against Google is barking up the wrong tree, especially when pulling the plug on their indexing would mean pulling the plug on your own readership. Perhaps the most obvious first step would be acting with a common voice, News Corps, Reuters, AP and other leading syndicates should approach the issues as a single voice to leverage consumers and web aggregate services. This however is somewhat undermined by the appearance of highly successful online blogs such as the Huffington Post.
As Clay Shirky wrote in his fantastic article on the subject ‘Society doesn’t need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable.’ If anything is for certain it is that the current model of printed newspapers is unsustainable, due to the high-cost of production and the simple facts described above.
Eric Schmidt wrote in the same letter previously mentioned:
‘I certainly don’t believe that the Internet will mean the death of news. Through innovation and technology, it can endure with new found profitability and vitality. Video didn’t kill the radio star. It created a whole new additional industry.’
One trend poised to take the printing market by storm are the E-readers, kindles and other portable reading devices that have begun to inundate the market. Though this is a viable solution to the high cost of printing, new questions regarding the ease of copying material are sure to surface. One way or another the role News Corps and other leading publications have to play in the contemporary news industry is increasingly unclear.
Background Reading
These two articles on disruption and the free business model are essential reading for internet neophiles!
http://abovethecrowd.com/2009/07/15/bill-gurley-on-the-free-business-model/
http://abovethecrowd.com/2009/10/29/google-redefines-disruption-the-%E2%80%9Cless-than-free%E2%80%9D-business-model/
This Shirky article is also very interesting, it reviews much of what the big publications got wrong:
http://www.shirky.com/weblog/2009/03/newspapers-and-thinking-the-unthinkable/