Searching for Online Gold
Newspapers are trying a variety of methods to wring money from their Web sites. One increasingly popular approach is requiring visitors to register, in order to amass data to help boost advertising. But the paid-subscription model is losing favor.
By Doug Brown
Doug Brown is a writer in Baltimore.
Reading a print newspaper every day involves a standard exchange: Before wading through the stories, customers buy the paper. There's nothing standard, however, about reading news online.
Everybody who wants to read the Wall Street Journal's cyberspace edition (online.wsj.com/public/us) must pay, whether or not they're print subscribers. At the Albuquerque Journal (www. abqjournal.com), print customers get memberships to the online version, but everyone else must fork over a fee to see Journal stories. But at Albuquerque's other newspaper, the Albuquerque Tribune, anybody can glide into www.abqtrib.com and surf themselves silly, without registering or spending money. Those who want to peruse the New York Times (www.nytimes.com) can do so for free, but first must register and adopt a user name and password.
Why the diversity? The drive for revenue. Online publishing is still a big experiment, and papers around the country are trying just about anything to beguile advertisers and persuade them to open their wallets. For years, newspapers dumped money and resources into their blossoming online operations without seeing profits. The frenetic pace of newspapers' spending for online dropped, however, after the dotcom collapse. At the same time, newspapers grew more adamant about squeezing profits out of their electronic offerings. It's now an industrywide standard, for example, to charge customers for access to news archives. The practice, however, doesn't funnel much money to the bottom line--less than 5 percent of total online revenue, according to Peter Krasilovsky, a partner with the media consultancy Borrell Associates Inc. in Virginia.
In some cases, the hunt for elusive advertising dollars is starting to pay off. This year, for a change, newspaper publishers are trumpeting the money their online operations are raking in. Some, like the Tribune Co., Knight Ridder and Scripps Howard, are calling their cyberspace efforts profitable.
But the trend will not necessarily culminate in a revenue fiesta.
Of 246 newspapers surveyed during 2002, between half and two-thirds claimed their online arms were profitable, according to a study by Borrell Associates Inc. Profitability, however, is hard to measure with online sites, says company President Gordon Borrell, because they depend on the print publications for content and, in many cases, free advertising.
Borrell, in fact, is troubled by online publishing trends for newspapers. The average newspaper Web site gets 70 percent of its revenue from classified advertising, he says. "There is great fear that the business model of charging for classified advertising is going to dissipate or disappear on the Internet, because classifieds are as much content that draws traffic as they are advertising on the Internet, and the cost of delivering that content is cheap on the Internet," he says. "So we believe there will be some downward pressure on online classified listing revenue, and if newspapers are overly dependent on that they're in real trouble."
At the same time, Borrell champions how aggressively newspapers have pursued cyberspace. In 2002, newspapers harvested $655 million in online revenue, according to a Borrell study. That's much better than the number for local television news Web sites, which raked in only $55 million in revenue during the same year. The Internet was an opportunity for television news to get some of the classified advertising dollars that newspapers have long feasted upon, but only now are broadcasters exploring classified ads on their Web sites, says Krasilovsky.
One thing is certain: As newspapers' online outfits stumble across moneymaking formulas, expect to see a burgeoning uniformity among their Web sites, experts say. Reading online will increasingly come with strings attached. And for now, those strings will largely be tied to free registration requirements at newspaper sites--not paid online subscription schemes.
Online publishing at the E.W. Scripps Co. newspaper chain turned a profit for the first time last year, says Bob Benz, Scripps' general manager of interactive media.
When the company started launching Web sites in the 1990s, the cyberspace operations were kept separate from print editorial and advertising. The advantage, Benz says, was a "fresh culture" online. But by keeping that sharp demarcation, the Web sites lost the community connection, the tentacle reach that took newspapers as much as 100 years to build.
"When we disassociated ourselves from that online," Benz says, "we created an uphill battle for ourselves to become profitable."
The corporation abandoned that approach about two years ago, melding print with electronic and broadcast. The change, Benz says, transformed the online ventures from struggling editorial sideshows to increasingly muscular profit centers. Benz declined to elaborate on the extent that the digital side was bleeding prior to the union of offline and online, but he did say the digital side would not be profitable if not for the merger.
"We aren't going it alone anymore," he says. "We're pushing multimedia sales, multimedia content. I think we're finally turning the corner, where people realize they don't just work for a newspaper anymore, they gather and disseminate news. It may be the newspaper, it may be online, it may be broadcast."
Benz says the next step is nudging the chain's more than 20 newspapers toward registration models, where customers must provide personal information and open a free account before accessing news. The chain will probably introduce such models this year, with each publication deciding for itself whether to try it. Benz, however, is a big registration booster.
"Online should not be free," he says. "You shouldn't be able to just come in and take that information. You may not have to pay money for it, but you might need to hand over information and see some advertising."
Registration can reveal loads about online readers. It gives the advertising staff detailed demographic data, which they can use to build the reader portraits that clients demand. The level of detail, combined with the ability to customize ads, is the online publishing advantage.
"I have a base of registered users, and I know what they are interested in," Benz says. "Over time, I gather information about them and they trust me to use that information intelligently and not abuse the information. I can do some pretty powerful things for advertisers and my readers."
Steve Yelvington, vice president of strategy and content for Morris Digital Works, a corporate arm of the media company Morris Communications, says the company plans to adopt registration at the Web sites of its 26 small and midsize daily newspapers even though the online outfit hit the black last year.
Registration will let the newspapers fine-tune their advertising pitches, he says, and show readers ads that match their demographic. Morris isn't too worried about the inevitable post-registration erosion of traffic.
"There is traffic, and then there is good traffic, and there are users and then there are good users," Yelvington says. "You are going to lose some traffic by putting barriers to usage in place.... But the traffic you will lose is largely not interesting traffic, it's people who aren't going to come more than once in a blue moon anyway. They aren't in your community, they are following some search engine link. That's not the sort of audience we need to be building."
Imposing registration schemes on readers is "a really smart thing to do," says University of California, Berkeley, adjunct professor Paul Grabowicz, an online publishing specialist. "There doesn't seem to be as much resistance as we once feared," he says. "I think part of that is people are feeling a little more comfortable with the medium, so some of the concerns about privacy and identity theft and having your personal information peddled to marketers has dissipated a little."
But the whole model could crumble if media companies abuse their online relationships with readers. If companies sell readers' registered data, opening the floodgates to spam, then people won't sign up and online publishers will fail to capitalize on the Internet's commercial possibilities.
The balance between customized advertising and intrusiveness may be delicate, but it's worth striving for, Grabowicz says. After all, he adds, delivering custom ads is the "value proposition" of online publishing.
For now the Internet is "an unproven commodity," with big advertisers like Procter & Gamble and Coca-Cola hesitating on the sidelines. Nobody quite understands, yet, how to make cyberspace work for huge businesses, but Grabowicz thinks the answer is wrapped up with registration. "If ads can be personalized," he says, "then I think you'll start to see more of a shift in advertising dollars."
Only a few dozen newspapers now charge for online access, says Krasilovsky, of Borrell Associates. At the end of 2001, analysts were predicting that newspapers in much greater numbers would force people to pay for online content, he says, but after flirting with subscription models, "most papers have reevaluated, and while they might want special premium [content] tiers, they are better off finding out who their users are and selling advertisers on their reach."
"Registration is the drumbeat of 2003, rather than firewalls," he says.
Both Benz and Yelvington dismiss the subscription tactic. Morris experimented with a paid-content model at its Juneau, Alaska, paper several years ago, but abandoned it because "it wasn't working," Yelvington says.
At Morris, one of the company's overarching aims is to bring in younger readers, those under the age of 35. Yelvington calls the Internet "a powerful tool to win that audience back, and we want to be aggressive about pulling that audience in." Making them pay for access, he reasons, seems counterproductive.
"If you look at the curve of Net usage by age group, it's pretty much the reverse of the curve of the readership of newspapers," Yelvington adds. "Younger people simply go online more often. They're not necessarily going online and reading news, and that's something we need to change."
Says Benz: "The demographic that might be coming to you online but not getting your paper may be your most valuable demographic. If we drive them away, we've missed a huge opportunity. Most younger readers are marginal in their interests in the paper to begin with. When they come online, it may be our chance to reel them in and tell them, 'You know what? A paper is relevant to your life. As you buy a house, as you get ingrained in a community, you need to know what the zoning board is doing, what the city council is doing.' "
The Tribune Co. started requiring registration for the Los Angeles Times and the Chicago Tribune Web sites last year, and it's headed toward the subscription concept, says David Hiller, senior vice president of Tribune and president of Tribune Interactive. "I think that the totally free, complete open-access Web site model is pretty flawed, and we're going to be working on a better mousetrap," Hiller says. "Elements of subscription will definitely be a part of it."
Tribune Interactive became profitable in the second quarter of 2002, Hiller says. Cutting expenses and building the advertising from $50 million in 2000 to $77 million in 2002 brought the division past the break-even point. Classifieds in particular, he says, have been a boon for the interactive division, accounting for about 75 percent of all ad revenue.
Tribune's next goal is targeted advertising, which, Hiller says, "was one of the primary reasons for getting into registration." "With those 2.5 million people who have registered [at the Los Angeles Times and the Chicago Tribune Web sites], we're able to target on-site advertising as well as develop targeted specialized e-mail programs that are very popular with advertisers and something for which they are willing to pay considerably."
Most newspapers aren't embracing subscription models, says Neil Budde, founder of the Wall Street Journal Online and now a consultant. Advertising executives at papers don't want to scare off clients just venturing into cyberspace; they don't want to rattle them with the loss of traffic that subscriptions bring. But longer term, he says, where newspapers "have a franchise for local news, you will see some level of subscription imposed."
Michael Zimbalist, executive director of the Online Publishers Association, an industry trade group, echoes Budde, saying that smaller newspapers will likely lead the subscription battle cry. "In a funny way," he says, "they are more indispensable to their market than the big metros."
The Albuquerque Journal did exactly what Benz and Yelvington warn against--it forced readers to pay to read. The guy in charge of the paper's online division, Donn Friedman, isn't blinking.
The independent, family-owned paper first published an online edition in 1996, keeping the site free and open until July 2001 when it launched what Friedman calls "our print-retention model." "There was enough anecdotal evidence of people saying, 'I've stopped getting the paper because I can get it online for free,' " he says. The cannibalization cost the company only 2 or 3 percent of its circulation, he says, about 4,800 subscribers out of about 160,000. But that loss wasn't worth it.
All print subscribers get the online edition for free. Everybody else pays $8 a month or $60 a year. When the paper switched to the new model, traffic plummeted by between 20 percent and 40 percent and the office was flooded with calls from angry New Mexicans.
In 2000, the Web site enjoyed about 133,000 unique visitors a month. That dropped to 106,000 users in 2001, but has now rebounded to 130,000, Friedman says. About a quarter of the paper's print subscribers signed up for free online memberships. Another 1,600 people have paid for online-only access.
Friedman was not thrilled, at first, about making everybody pay. He liked the freewheeling environment of the Internet, where so much information is free and the reigning ethos ridicules anything involving forking over money for service. He was also leery of the drop in advertising that he predicted would follow the change.
The ads did fall off immediately after the switchover. But now, he says, ad sales people "have found it easier to sell ads, in the same way it's easier to sell ads in papers that are paid."
"We know the people who are entering our site, who took the time to register," he says. "They will spend more time with the content. They are members, they are readers, and if they've taken the time to log in, they will spend more time at the site as well."
At Clickshare Service Corp. in Massachusetts, business is brisk. The company designs systems that let publishers sell content. Newspapers are a big client.
"I would say it's dramatically different from a year ago, it's picked up a lot," says Dirk Swart, the company's vice president of customer technology. "There clearly is an understanding that this is a need."
Clickshare works with about 15 newspapers, including the Worcester Telegram & Gazette, which offers a variety of pay-as-you-go plans. Want to read a story on the Web site? If you subscribe to the print edition, you can surf for free. Otherwise, you could pay 50 cents for a day's worth of access, or choose from other options: $1.99 a week, $6.75 a month, $69 a year.
Clickshare allows publishers to introduce registration schemes, which Swart champions as a good interim step on the march toward paid subscriptions. By starting with a registration model, "you move your readers gradually in that direction," he says.
The Wall Street Journal has charged for access to its Web site since August 1996. The model has worked and the folks at Dow Jones aren't going to fiddle with it, says Scott Schulman, senior vice president of sales and marketing of Dow Jones Consumer Electronic Publishing. People who don't subscribe to the print edition are charged $79 a year to get online while print subscribers pay $39.
"Our strategy is about premium content and premium audience, meaning we have a very desirable audience that advertisers want, and a premium environment, because we have a clean, less cluttered environment on our site compared to the others that only depend on advertising for their revenues," he says. "All of the pieces support each other."
The Internet business unit, Consumer Electronic Publishing, has been profitable since the third quarter of 2002. The business unit includes more than WSJ.com, but the Journal's Web site is the largest of the roughly 10 businesses within the division, according to spokeswoman Karen Miller Pensiero. As a "corporate practice," she says, the company does not break out profitability levels for any individual products.
The Journal this year launched a new online product, Health Industry Edition, which telescopes content around the health care industry. The site--essentially a trade magazine carved out of the online Journal--costs the same as the regular online Journal, and once readers sign up, they can tap into the rest of the electronic Journal, and vice-versa.
The health edition generates new subscriptions, Schulman says, and it "has dramatically increased the traffic to our health content." "The Wall Street Journal has always done a fantastic job of health coverage, and this was a way to elevate it and highlight it," he says. "It's a way to get incremental subscribers who might not subscribe to the Wall Street Journal, but view this as very valuable."
The journal has launched another so-called "vertical site" on media and marketing aimed at professionals in advertising, public relations, media and entertainment.
After the collapse of the dotcom economy, some advertisers went away, or their budgets withered, and the site did lose revenue. But display ads were up about 20 percent in 2002 over 2001, Schulman says, and the trend seems to be continuing this year. Subscriptions continue to rise, too, up about 9 percent this year over last, hovering around 700,000.
Only six papers, according to Schulman, have more paid subscribers than Wall Street Journal online.
The challenge ahead is all about size, says Zimbalist of the Online Publishers Association. Newspaper online ventures are finally turning profits, but can they grow into revenue leviathans?
"If today the online channel is contributing 3 or 4 percent, how can it get to 10 or 20 percent in the next five years, and where will it reach the point of equilibrium?" he asks. "Everyone feels we are just ramping up now."