Free News On The Internet A Failed Business Model?

Philip Stone September 24, 2008

The media has been rushing the past few years to put all its breaking news on the Internet for free, and while at it, might as well put the features, investigative pieces, in fact just about everything there! And by golly, Internet readership shot up while print circulation fell. Why buy the newspaper when that news is on the Internet for free? So what that Internet ads are bringing in only 12% of what a print ad does? Could it be that the free news on the internet business model isn’t all it’s cracked up to be, or put another way, is that mirror cracked?

Sure, there are a few examples like Norway’s VG where the newspaper web site is close to bringing in the same revenues as print, but such situations globally are really few and far between. Most forecasts say that even in five years time the Internet will provide no more than 13% of total revenue for most newspapers, and that won’t be so much because of increasing web revenues as it will be from decreasing print revenues.

So maybe it ‘s time to take another look at this business model and to do that we turn to a fascinating speech given last week by Walter E. Hussman, Jr., publisher of the Arkansas Democrat-Gazette who spoke at the 62nd annual National Conference of Editorial Writers, and what he said deserves wide dissemination.

The Democrat-Gazette charges for most of its online content, and you know, its print circulation has gone up over the past 10 years – not by much but an increase is far far better than what most newspapers have reported during that period.  Charging for online content is “really contrary to what most people in the industry are doing,” he said. “They’re putting all their content out there thinking they’re going to reap some great bonanza by doing it.”

He compared his small circulation increase (7,500 copies) to two newspapers that are fairing so poorly their owners have put them up for sale -- the Austin American-Statesman (Cox) , where circulation is down by 17, 300 and the San Diego Union-Tribune (Copley) , down  by about 97, 300.

 “These are the kind of newspapers that five years ago would have been a dream for someone to even bid on — both great, great markets,” he said.

So, what is the Democrat-Gazette’s secret to success?  Very simple – people need to buy the newspaper to get most of the content they are looking for. It is not all available for free on the Web. Hussman belongs to the camp that says newspapers will remain viable for readers and advertisers as long as circulation and readership is maintained.

What he can’t compete against is the national and international news that is now a free Internet commodity. If that is what readers mostly want then he’s not going to keep them as print readers. But if the newspaper has something that is not available elsewhere (local news, investigative pieces and the like) then people will continue to pay.

He says flat-out that the banner ads and pop-ups just don’t sell. Online advertising for newspapers, he said, has turned out to be “a flop.” He asked, “Anybody in this room ever gone out and bought something from reading a pop-up ad or a banner ad? I’ve never bought anything,” he told his audience.

Hussman is nothing if not pragmatic. He told Al Neuharth, USA Today founder and former Gannett CEO, in a recent USA Today column that the secret to his newspaper’s continuing success is “We put news in the paper that people can use. We give away free classified ads to help them find a job or sell a car or a house.”

A blog on the site of the weekly Arkansas Times took issue with Hussman’s Internet views, and it also mentioned some extenuating circumstances that helped keep the Press-Democrat circulation firm. But on the free web philosophy the blog basically says that horse is long gone so useless closing that barn door.

“Newspapers have been crippled less by free web content than by the devastating impact of on-line classified advertising. Newspapers' loss of young readers was well underway long before the Internet came along. Charging for web content now -- as a new strategy -- would be a risky move. Many simply won't pay. They'll turn to the growing list of options. TV stations, for example, are becoming one-stop news sites in many markets, with news, weather, sports scores and, some places, even obituaries.

“On the other hand, Hussman can afford as head of a family enterprise to settle for a lower profit margin than corporate media groups with their hungry stockholders and debt loads. Over the long haul, if he's right in running against the tide, his jackpot will be enormous.

“Over the long, long haul (and that haul may be shorter than I think), you have to presume we'll see the end of expensive paper and presses someday.”

Be that as it may, a recent piece by Chicago columnist Phil Kadner says that if the nation’s banking system can be bailed out by the government for making stupid decisions, then why not the newspaper industry. Here’s some of his reasoning in an open letter to President Bush:

“The leaders in our industry have made decisions so incredibly dumb they seem incomprehensible to rank-and-file employees who have absolutely no business sense…Our leaders decided to give away the product we used to sell – making all newspaper stories available for free on the Internet.

“Why are we doing this?” I remember saying years ago. “It’s the future,” I was told. Everyone in the business is doing it. We’re not going to be left behind.” “But how are we going to make money?” I said, not having a head for business. “We’ll figure it out,” I was told,

“Of course, no one has figured it out, and young people no longer are buying newspapers. No one in the newspaper business can figure out why that is. Mr. President, I contend that an industry led by people who give away its product for free, a business that cannot figure out why young people no longer buy a product that’s free, is ripe for a federal bailout.”

Well, at least the business model is now being openly questioned.  Is print just holding out until the Internet can take over, or is there a way for both to live profitably side-by-side?