New business models for newspapers

Rupert Murdoch’s announcement that he does not believe in free content on the Internet made me think a bit over the weekend. So far I have always said that I believe that everything on the Internet will eventually be free. I still believe that for the majority of the content this will be the case, but the more I think about it the more I see that a shift may be coming.

If you look at music for example, even though most music is available for free if you search for it, many people are willing to pay for it online. iTunes is big business for Apple. The trick is a combination of an application that is easy to use, with a great user experience and a relatively low price. iTunes combines all three of these. They have a huge catalog of music, from mainstream to very obscure, that is easy to find, easy to download and easy to pay for. You see a similar thing with e-books, if you want to find free versions of books and know where to look for them, you can find them. But Amazon announced this week that 35% of its book sales are e-books (figure still seems incredibly high to me), people prefer to pay for them.

In games you also see similar things. In China you cannot charge anything for a game, people do not want to pay for them because they are available for free all over the Internet and very easy to find as well. But does that mean that Chinese users are not willing to pay anything to have a better gaming experience? No, they are willing to spend money. That’s why virtual goods took off over the past 3 years, and it has become a huge revenue stream for many game companies. Even if the basic service (=the game) is free, people are still willing top pay to enhance the service.

Something similar might happen to news. I don’t think people will pay subscriptions to online newspapers like they do with paper versions, at least not at the same rates that newspapers are currently asking for. But there are other business models possible. First of all it’s important to realize that putting a paper behind a firewall will lead to a huge decrease in the number of readers, which leads to a lot less advertising income (currently the main source of income for online papers). But not only that, you also immediately lose a high Google ranking because links to your articles either don’t work anymore (if you also put the archive behind a firewall) or because nobody will link to you (because readers who click on the link would have to pay, so linking does not make much sense). This means that a paper should think very seriously about the consequences before making this decision.

I think news is available for free everywhere on the Internet, so you cannot charge for it anymore. It’s too late for that now and trying to do that will lead to failure. But you can charge for other things. For example, make the basic paper free (all news stories as sourced through news agencies) and make sure the quality is as high as it used to be. But put other parts of the paper (for example the art, books, travel or real estate section) behind a paid firewall. Link to these articles from your basic free paper but only give the first 1-2 paragraphs (or a summary) away for free. In this way you still have the link in Google, and people might still link to it.

But don’t try to sell subscriptions for this – use micro-payments! Charge a very small amount of money for it. So small that nobody really thinks twice about it. How much? You would need to do some research on this, but likely less than 5 cents (USD cents) per article. If that’s the case many people might decide to read the article, psychologically a few cents does not hurt your wallet.

This will only work if there are easy payment solutions. If you have to get your credit card out first or need to go to Paypal it wont work. There should be a 1-click solution, you click and you have access. Newspapers should cooperate on this, they should come up with a standard payment solution for all newspapers together. E.g. buy a credit online that can be used for all newspapers online with one click. Just like it works with game cards in China, they can be used with many games and only when the credit is used in a certain game that operator gets the money.

I believe micro payments combined with advertising might be a solution for the online newspaper industry. But of course there are other solutions possible. I believe paper newspapers will eventually die. They are just too expensive, both in terms of the material used and because of physical distribution. E-book readers will get better and better and will eventually be so good that the user experience will be as good (or even better) as the old traditional paper newspaper. I therefore believe e-paper will take over the mass media market. Costs will be a lot lower (because no paper and no distribution costs) and the paper could be updated continuously. Newspapers need to reinvent themselves for this for this.

A subscription to a newspaper on an e-book is still a bit too conservative in my opinion. I think you need to think one step further: newspapers should work together and offer combined subscriptions. Because the variable costs for e-papers are zero (or almost zero) the papers should work together and offer a subscription to all papers together. At the end of each month you can do a calculation based on actual usage per newspaper and split the revenues. It’s as simple as that. The customer has more freedom, the paper can still put ads in its e-paper version, and only the quality or marketing of the paper determines whether more people will read it.

This model could be combined with the micro transaction model that I described above: users get credits when they subscribe and use these for non-free content online. And these credits can of course be used for every paper. With these credits a whole new world of possibilities opens up, think about what happens if advertisers start giving away credits.

Just a few thoughts on a Sunday night. I have a lot more ideas about this, too many for a blog post. I am sure News Corp’s Freemium teams will come up with a lot more and a lot better ideas. I look forward to their results and to what News Corp will eventually implement.

I now start to believe that users might accept that they have to pay for good content, but it depends on how you implement it. I also believe that content will only get better when the creators get paid for it. Rupert Murdoch might be able to change the current rules of the game – or at least initiate the change.