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Strategic analysis
How Newspapers Can Charge for Content

Written by on January 18, 2010

Several blogs and media outlets reports that the NY Times will start to charge money for reading their newspaper online.

notice: It's official - NY Times will start charging for content in 2011: http://bit.ly/4E2FNx - I hope they remember "we want news, not newspapers"

We can always discuss wether or not you will actually want to pay for it, but the facts are:

  1. Ad revenue doesn't cover the cost, so they have no choice.
  2. The biggest reason why ad revenue doesn't cover the cost, is because their entire operation is built around a very expensive print industry.

Basically online payment models will continue to fail as long as the price includes covering the cost of their print industry.

Book publishers have the same problem. They are worried about ebooks selling for $9.99 (which is actually only happening very rarely, and basically only via Barnes&Nobles - everyone else have flexible prices that follows normal market mechanisms).

But here is the thing. A printed book might costs $24.99, but that includes having an author writing the book, an editor, copy editor, and a couple of friends reading it. Then having people to layout the book for print, printing it, shipping it across the world from the printers (many of which are in China), to their USA distribution centers. All which involves having people to load it in boxes, then load it in containers, then have crane operators hoist it onto ships, which then have to be ferried by 7-8 people... then all this in reverse in the US.

And then they have to be repacked for them to send it out to their regional distributors, who unpacks and repacks everything to ship it to their local distributors, who then put it on another truck to bring it to your local bookstore. All which require many paid workers, not to mention a huge amount of logistic assistants.

The bookshop owners then have to pay rent, buy decorations, hire sales people, desks, bookcases, lighting, and provide healthcare plans and possible pension plans.

All this, and quite a bit more, for $24.99 per book.

Compared to online ebook sales, where you just need the author, the editors, a few friends, and a web server that can deliver the book to Amazon digitally.

Why do I have to pay $24.99 for an ebook? Since the cost of production is lower, shouldn't the book then be cheaper too?

Let's make a deal - lets meet halfway. I will pay $12.49 for an ebook, if you promise not to link its revenue to your print division.

Note: The real reason why publishers are worried about ebook prices is that the authors are paid based on the list price of the printed book. An author usually gets between 10-15% of the list price. An author earns roughly $3 for every book, regardless if it sold as an ebook for $9.99 or as a hardcover at $24.99, because in both cases the list price is 24.99. What they don't realize though is that the publisher could earn a lot more on ebooks if they just got their head out of print mode.

The newspapers have the same problem. The cost of making a newspaper includes what it costs to print it. I will not pay for that. I don't want it printed. Give me a price that is only linked to the actual cost of making the article itself - and let the print subscribers cover the cost of getting it on paper.

The cost also includes having a huge office, because most media companies operate as if their employees were factory workers. In comparison, ReadWriteWeb have no office (more here).

The point is. There is no question that the media industry needs to find out how to become profitable in this new age of social news. But, the big problem is not how to make more money, but instead how to get rid of all those unnecessary expenses.

The cost of producing baekdal.com is roughly $40,500/year (everything included), and that provides me with 2.4 million absolute unique readers. Which amounts to $0.017 per reader.

Note: Baekdal.com is not actually profitable, but I hope to make it so in 2010.

The New York Times costs $211 million a year to produce, with a circulation of one million readers on weekdays and 1.5 million readers on sundays. So how many readers do they have per year? Well, good question. Considering that 650,000 goes to regular subscribers on weekdays, and one million on sundays, we can add up the rest by a year. And then say that one in 20, are people who buy it every day on their way to work (but do not subscribe). The total is then 108 million readers per year.

That still means that the NY Times costs about $2 to make per person reading it. That is 114 times as expensive per reader than this site.

This is something that every newspaper needs to focus on before trying to charge for news online. We are not willing to pay for something that is 114 times more expensive than what it costs to produce over at Mashable, Gigaom, Techcrunch, Huffington Post, ReadWriteWeb etc.

Here is what you do:

  1. Separate the cost of creating news, and the cost of producing news. Do not set your online price based on what it costs to produce the printed paper.
  2. Get rid of all the middlemen, the hugely expensive office buildings, the 1950s way of running a business. And all the expensive bureaucracy that goes with having everyone work in a factory style working environment.
  3. Setup a system that calculates the cost of each article (easy to track with page views + time it took to write an edit it + expenses if you have to travel etc). Compared that with each article's social engagement level - and suddenly you will see that filling your newspaper with reprints from Associated Press is not really helping you (they are cheap, but usually have a very low engagement level = not something people feel justified paying for).
  4. Divide your paper into two. One that is about general news that is cheap to create and even cheaper to publish (all the low engagement articles) - and give that away for free. Then create a premium version that for a reasonable price, gives you all the good stuff (the high engagement articles).
  5. Make sure you do not create a closed pay-wall, but instead one that allows people to share the content with non-subscribers. Sharing is the way you get non-subscribers to get a taste of how good you are. It is your most important sales channel. Hiding that behind a pay-wall would be a disaster.
  6. Do not create an all-purpose payment model. There is no chance that I or anyone else will pay for every single section off your newspaper. For instance, I couldn't care less about the sports section. Create a number of niche channels, and allow me to subscribe to only the things I want.
  7. Do not create destinations. Do not force people to use a specific reader, software, or mobile app. The future is in personal news aggregators - not closed apps for each source of news.

Do all this and you got a good chance of surviving in the future world of news.

But, there is one more thing you must do: Be unique.

When Mashable created a poll asking people if they would pay for the NY Times, the first thing people commented was "There are plenty of other sites..." - and they are right!

For the last 200 years, newspapers have all tried to reach an ever more general mass of people. And in this quest for general acceptance, they are now all alike. There is nothing really unique about any newspaper on the planet. Their differences are small in insignificant.

This will kill you online. In a world of infinite amount of choices, you need to elevate your content above everyone else's.

People will not pay for something that they can just as easily get elsewhere (and online it really is just as easy), but people will pay for quality content that is unique.

I, for instance, pay every month for TWIT.tv (the best podcast network on the planet). I do not actually have to pay for it (it's donation based), but I pay because it is that good - and I want to support it.

TWIT.tv creates value and that is worth my money. The NY Times don't (at least not sufficiently).

If the newspapers want to get people to pay for their content, they first have to stop being generalists. They have to stop trying to be the jack of all trades - master of none.

Now it's your turn. What would it take for newspapers to get you to pay them?

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Thomas Baekdal

Thomas Baekdal

Founder of Baekdal, author, writer, strategic consultant, and new media advocate.

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