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Free as a business model for news

Jeff Jarvis (Photo by Robert Scoble via Flickr)


The Internet has disrupted every industry, from real estate to airlines to, yes, news organizations. In his 2009 book What Would Google Do, Jeff Jarvis explains how the business strategy of the search engine giant has allowed it to not just survive but thrive in an online world.

A key to Google’s success is embracing free as a business model. Google offers the use of its various features – Google maps, AdSense, Blogger, YouTube – for free. It acts as a platform, not a creator. By not charging people, Google is able to amass a huge user base and in turn huge profits from advertising.

Information wants to be free,” said editor Stewart Brand in a famous aphorism first spoken in the 1980s. But, Brand added, “Information also wants to be expensive.”

It’s this tension between the ease and low cost of distributing information online and the effort and high cost of creating content that news organizations face today.

The futility of paywalls

The “original sin” of newspapers was to allow users to consume content online for free, writes former editor Alan Mutter on his blog in 2009.

“Life today would have been easier if newspapers, magazines and other print-to-web media had recognized in the first place that their content was too valuable – and too expensive to create – to simply give it away on the Internet,” Mutter writes.

Mutter’s suggestion that charging for content early on misses the point. Even if newspapers put up paywalls from the time their websites were up, the Internet still would have forced newspapers and broadcasters to confront the shift in online news consumption from an “economy of scarcity” to one of abundance, as Jarvis describes it.

The success of paywalls relies on two main assumptions:

  • The news organization charging for content has exclusive information that cannot be accessed anywhere else online for free.
  • If it’s valuable to them, people will pay for the information.

Assumption #1 is refuted when considering the wide range of news sources available now online. In Chicago, the Chicago Sun-Times and Chicago Tribune may represent the two large metro dailies in the city, but Chicagoans can also turn to aggregator Huffington Post Chicago or the Chicago News Cooperative or a plethora of blogs to supplant legacy news. When anything and everything is a search box and link away, exclusivity is erased.

And Assumption #2 falls flat when considering the psychology of free vs. not free (or even nearly free). Venture capitalist Josh Kopelman calls the difference the “penny gap.” Wired editor Chris Anderson writes, “People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that’s the difference between a great market and none at all.” Even if something is better but costs a little bit more, free still rules.

Despite the arguments against paywalls, and despite many news organizations’ failure with paywalls, The New York Times is still giving it a go. The Times’ paywall takes a metered approach — charging after clicking on 20 articles per month. Users can also choose bundled digital subscriptions.

The Times has gotten a lot wrong with its pay experiment: It tries to protect its print publication (by not charging print subscribers for online access), rewards its most dedicated customers with a fee and curtails traffic to the website that would otherwise increase its brand, influence and ad revenue.

Experian Hitwise estimates The Times has lost 11 to 30 percent of pageviews in the 12 days after the March 28 launch of the paywall compared with the 12 days before the paywall was erected.

A better way for The Times to approach revenue? Jarvis writes in a recent post on his blog Buzzmachine: “The Times would have better used the $30-40 million reportedly spent on its meter finding ways to better engage its public—multiplying pageviews (fourfold or more?) and consequent ad revenue—while finding new ways to exploit these deeper relationships (data, commerce, events….). The Times knows it needs to increase engagement; that’s the industry’s favorite conference buzzword. The irony of The Times’ meter is that when it succeeds at engaging a once-casual reader, their reward is a wall. That is an economic and strategic question.”

In short, Jarvis is saying The New York Times should have followed in Google’s example – make information free, build the user base and profit from the ads.

But what about some print publications – mainly Wall Street Journal, Financial Times and Politico Pro – that appear to be having some success with paywalls?

These publications benefit from offering expert analysis and targeting a core audience. However, Jarvis’ argument could apply here too. Financial Times allows you to see headlines on the homepage but requires a login to read any part of an article. The Wall Street Journal allows you to read the first few paragraphs but then requires membership access to read the entire article. Of these three, Politico probably has the best business model – a free site for general users and membership for targeted industries of technology, energy and health care. The Journal and Financial Times would benefit by making more content free. By doing so, they could build their brands and create a larger audience.

How to make money from free

Free doesn’t mean no one is making money. But news organizations will have to find ways other than paywalls to bring in revenue – what Jarvis calls a “side door.”

One side door is targeted online advertising — becoming ever more sophisticated – to help users find the best deals and services related to them. Ads then become a resource and not just an annoyance to users trying to read an article or watch a video.

Mobile devices are another side door. Digital device users are already accustomed to paying for content, and early adopters are heavy news consumers, said former editor and media executive Ken Doctor in the American Journalism Review. The growing market of specifically tablets might offer a particularly wide-open side door. At the end of 2010, Apple had sold $14.8 million iPads. Apple is dominant now among tablets but it’s not alone in the market. Information Week reports more than 50 manufacturers will offer close to 100 tablet models in the next year. What The Times may have gotten right is charging more for digital access that includes access by tablets.

“What the tablet does by accident is it gives the industry a do-over opportunity,” Doctor said in the AJR article.

In What Would Google Do, Jarvis also points to community guides and events as ways that news organizations have brought in new streams of revenue.

However, even with online advertising and other “side doors,” revenue is unlikely to equal what it was pre-Internet. That means free as a business model will create wholly different types of news organizations – smaller and more niche. If news organizations start to act like platforms — like Google — they could operate with more agility, relying on a leaner staff and more collaboration with citizen journalists and bloggers.

Jarvis writes in his book, “A newspaper is no longer a printing press that turns out money. But as a network it could be bigger than papers have been in years, reaching deeper into communities, having more of an impact, and adding more value. To get there, it has to act small and think big and see the world differently.”

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