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The economics of newspapers in two charts

James Fallows posted a slideshow compiled by Hal Varian, Google's chief economist, on the economics of newspapers. The first chart breaks down where newspapers get their money, and how they spend it:

hal-varian-powerpoint-03.jpg

And here's a breakdown of ad revenue:

hal-varian-powerpoint-07.jpg

Those online ads aren't worth much, I fear. That's not to say they're worth nothing, or won't be worth a bit more in the future. But it's hard to see them really closing the gap. We're going to need to find another way. And Google has already started thinking about it.

"People inside the press still wage bitter, first-principles debates about whether, in theory, customers will ever be willing to pay for online news, and therefore whether 'paywalls' for online news can ever succeed," writes Fallows. "But at Google, I could hardly interest anyone in the question. The reaction was: Of course people will end up paying in some form -- why even talk about it? The important questions involved the details of how they would pay, and for what kind of news."

I'd like to see some solid numbers on what people would have to pay to support news production if advertising revenue dropped by half before I get too sold on this idea. But I do think the resistance to paying for news is a bit silly. In Wonkbook, I link to a lot of Wall Street Journal content. A few days ago, a reader e-mailed to ask how he was supposed to read those articles -- they were behind a paywall! I almost felt bad telling him the answer.

By Ezra Klein  |  May 12, 2010; 11:56 AM ET
 
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Comments

Personally, I read a lot of things that are free, that just aren't worth paying a dime for. Are there more like me? You calculate at your own risk.

Also, presumably lots of online readers are bored workers, procrastinating or babysitting a desk. Who pays for their viewing habits? They do on corporate salaries? The employer's do?

When it's free, people read you. And sometimes, not necessarily for the wisdom of your opinions, and the great value of the imparted wisdom.

But who knows? Maybe there's a lot of extra cash floating around out here that people won't miss when they're asked to pay for something that previously had zero value.

(that's not "gaming the system" or free-riding either. You just stop consuming the product once it costs more than it's worth. No consumption = no mandatory cost shifting.)

Posted by: Mary42 | May 12, 2010 12:04 PM | Report abuse

It is considered rather bad etiquette to link to something behind a paywall (as your reader's question indicates), I'd certainly prefer if that content were not linked to.

Posted by: adamiani | May 12, 2010 12:15 PM | Report abuse

A few immediate comments about the Fallows article in the Atlantic. First, there were some very valid points and I hope those who should read it do indeed read it.

Second, local advertising via the Internet is ineffective in that, at present, it is too expensive for the market it reaches. I've often wondered why online local newspapers (WaPo included) don't have the good, old-fashioned, relatively inexpensive non-Google non-click-thru local marketplace advertisements at the foot of each page.

Third, Fallows seems to highlight Google's all-electronic model. With a significant portion (> 80%) of the US population lacking viable broadband access, such a model is a long, long, long time away. Revenue at small printed local papers is increasing at a rate which "surprises" those who have too quickly embraced an electronic model.

Finally, what happens when a disaster of Katrina scope hits your hometown? Who will deliver printed news to all the neighbors without electricity and network access for months?

Posted by: rmgregory | May 12, 2010 12:21 PM | Report abuse


I read a good article a few months back about the effects of the real estate websites on newspaper real estate ad revenue. A very good point was made that newspapers can't hold a candle to a web-based ad with lots of pictures, no character limits, links to maps and street view, even mortgage calculators and links to appraisal histories. Real estate ad revenue used to be a very significant source of revenue for newspaper and it is slowly dying.

That said, I think it's something newspapers shouldn't give up without a fight. I think local newspapers could position themselves (and some have) as a good online source for real estate ads. I'd personally rather not get my real estate info from one realtor's site at a time and get it from a citywide site that hosts their own ads.

Posted by: ThomasEN | May 12, 2010 12:35 PM | Report abuse

I don't see how the Google approach is going to help the local newspaper business, which is just about dead right now. The advertising drain has killed many and is killing most local papers. The survivors have already fired most of their experienced reporting staff, replacing them with whomever can type and is will to get paid $20,000 per year. Even these young reporters quickly move on if they find any sort of advancement opportunity that pays more. So the local news reporting gets worse and worse, reader numbers dwindle, advertisers go away. It's a death spiral and Google isn't going to find a wide audience willing to pay for the sports scores or the city council minutes for Podunk, Iowa. The audience for that information is finite, the costs have soared, and the revenues have tanked. Hence, no local newspapers.

Posted by: AuthorEditor | May 12, 2010 12:36 PM | Report abuse

"It is considered rather bad etiquette to link to something behind a paywall (as your reader's question indicates), I'd certainly prefer if that content were not linked to."

This is my point, though. It's very weird that it's considered bad etiquette to link to news that tries to cover some of the costs of its production. There's a summary in my post, and if people think that it's information they'd like to have, they should think about subscribing.

Posted by: Ezra Klein | May 12, 2010 12:38 PM | Report abuse

I'd gladly pay one flat monthly fee to read all of my news. But right now I read the NYT, WaPo, my hometown paper, several different magazines, etc. If I had to pay separately for each I'd have to choose one. I just don't forsee a lot of people spending $50-$60 per month to subscribe to a bunch of different news websites, even if each one individually isn't that much - and I think this would be a disaster for magazines, because if I'm choosing only a few sources I need to keep up with the day to day news.

Plus if you go that route you'll open up a gap between people whose jobs offer subscriptions and people who don't. To take the Post as an example, I could forsee ever more focus on the federal government and national news to cater to the types of people who have desk jobs at large companies and in government and ever less focus on, for example, crime in Southeast and DC public schools, because the types of people who need to know that type of news are less likely to have a desk job.

I know the news industry needs to bring in more money - I just don't think individual paywalls for each outlet are the answer.

Posted by: amy130 | May 12, 2010 12:44 PM | Report abuse

Two unrelated thoughts:

1. The revenue disparity between print ads and web ads is smaller than it looks, because part of the print-ad revenue has to be plowed back into production of the physical ads. A newspaper with no advertising would use less paper and less ink and would be lighter and thus cheaper to transport. I have no idea how the numbers would actually look if this factor were considered, though.

2. Theoretically, the revenue from web ads and the revenue from print ads should be driven largely by the effectiveness of each. Either web ads are in fact less effective than print ads or they are comparably or more effective. If they are less effective, then innovation in ad presentation is likely to solve the problem. If they are comparably effective, then either web ads are underpriced, print ads are overpriced, or both. Either way, web ads are a better deal, and sooner or later companies will realize it and the change in demand will move prices. If web ads are underpriced, then overall newspaper revenue will increase. If print ads were overpriced, print revenue will remain low, but it will mean that past newspaper revenue was an inefficient bubble driven by bad information on the value of advertising to advertisers.

I suspect that what's really happening is that the ease of measuring clickthrough rates for web ads has made adbuyers focus on the revenue associated with immediate response to web ads. It's much harder to get an analogous metric for print ads, so ad performance is measured more generally. So comparing campaign success between web and print ads is an apples and oranges comparison which makes web ads look worse but which was never a good comparison to begin with. As a result, the price that advertisers are willing to pay for web ads is low. Eventually, we'll get better at doing good comparisons of effectiveness across different media, and the pricing will shift. I suspect that right now we're in the low point of overall ad revenue as the value of print ads has fallen but the value of web ads is not yet accurately understood.

Posted by: GalenHBrown | May 12, 2010 1:39 PM | Report abuse

It's interesting that the breakdown of retail, national, and classified ads is so different in the two graphs.

Posted by: tomtildrum | May 12, 2010 4:38 PM | Report abuse

I'm with amy. If I could somehow get an "access bundle" and just pay a flat fee for access to a whole bunch of news sources, I'd do it.

As is, the above slideshow just confirms what I figure will probably happen with newspapers: eventually, they'll shrink down to online news sources heavily dependent on subscriptions for their revenue, while paying a small amount of money to wire news services so they can put some free news on their front pages to draw people in.

Posted by: guardsmanbass | May 12, 2010 6:28 PM | Report abuse

" I just don't forsee a lot of people spending $50-$60 per month to subscribe to a bunch of different news websites, even if each one individually isn't that much"

Really? I easily spend that much on newspapers and magazines already. It's about £25 a month for the Guardian alone, and I subscribe to or regularly read about six magazines for between £3 and £5 a month each. I'm something of an outlier, but I don't think I'm totally beyond normal on this front.

That said, the "internet distribution could cut production costs by at least half" line is a bit disingenuous. It's not free to produce and distribute online - you need bandwidth, IT and IT support, web designers and programmers and so on. That said, it does make a lot more sense in the US, where distribution costs per reader are so much higher, than it does in the UK.

Posted by: GingerYellow | May 13, 2010 8:57 AM | Report abuse

Some interesting points of view in this discussion. I and my team are directly involved in helping Newspaper (and other media organizations) evolve toward a "freemium" model. I don't get the logic about why I should get content for nothing, in my experience, content is only worth what you pay for it i.e. free = worthless.

Just because one of the old ways of supporting print media was free content promotion via the web does not justify the continuance of this insane practice. Rupert Murdoch (and other enlightened business people) are right to ask customers to pay a small charge (suscription) to access news and related content. iTunes has been successful in doing this for music, Lovefilm for video, the FT for financial news and content, it's time for the news print industry to wake up to the fact that it has evolved into an on-line information and retail business. It's a completely new business model and comes with new opportunities for revenue generation. Think of all the costs that can be saved in materials, production and distribution. Think of the possible sales revenue for 3rd party relationships.

Publishers (and consumers) need to stop fighting change and embrace the new order to get the best out of it.

A white paper discussing new content monetization opportunties (it's free by the way) can be found here...

http://www.atypon.com/resources/resource.php?id=1158

Posted by: mercbenzfan | May 13, 2010 10:51 AM | Report abuse

So your answer was get a WSJ subscription already? Geez, I hope Murdoch's circulation dept. has you on commission.

The real answer is, of course, Google News. For some reason, paywalls are defenseless against it. Type in the article's title and the full story should come up.
http://www.bargaineering.com/articles/how-to-read-the-wall-street-journal-for-free.html

Posted by: beowulf_ | May 14, 2010 2:32 AM | Report abuse

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