Paying for News

Walter Isaacson has a big article extolling micropayments as the future of the publishing industry — despite the fact that, as he admits, the technology simply doesn’t yet exist to make them easy enough to be workable.

What’s more, the entire premise of his article is flawed:

There is, however, a striking and somewhat odd fact about this crisis. Newspapers have more readers than ever. Their content, as well as that of newsmagazines and other producers of traditional journalism, is more popular than ever — even (in fact, especially) among young people.

The problem is that fewer of these consumers are paying. Instead, news organizations are merrily giving away their news…

This is not a business model that makes sense… when Web advertising declined in the fourth quarter of 2008, free felt like the future of journalism only in the sense that a steep cliff is the future for a herd of lemmings.

Newspapers and magazines traditionally have had three revenue sources: newsstand sales, subscriptions and advertising. The new business model relies only on the last of these. That makes for a wobbly stool even when the one leg is strong. When it weakens — as countless publishers have seen happen as a result of the recession — the stool can’t possibly stand.

In reality, consumers have never paid for news. Isaacson is right about the three revenue sources, but he fails to mention that newspapers and magazines have two massive cost centers which need to be covered by those revenue sources: the newsroom, on the one hand, and printing and distributing the physical product, on the other.

A subscription to Time magazine costs 70 cents an issue — that’s much less than the cost of printing and mailing it. As a result, advertising revenues have historically covered not only the entire costs of the newsroom but also a large chunk of printing and distribution costs as well.

Isaacson says he is

hoping that this year will see the dawn of a bold, old idea that will provide yet another option that some news organizations might choose: getting paid by users for the services they provide and the journalism they produce.

But really that’s not an old idea at all: it’s new and untried. Users never paid for journalism; the only service they partially subsidized was that provided by the postman or delivery boy. A few users are now paying for online subscriptions to the likes of the WSJ: that’s a new phenomenon, not an old one, and it’s a business model taken from newsletters and trade publications rather than from newspapers and magazines circa Henry Luce.

The reason that people got excited about the web in the 1990s was that they could see that it slashed printing and distribution costs essentially to zero. Ad revenues on their own were always greater than ad revenues plus subscription and newsstand revenues, minus printing and distribution costs. So there was great hope for the industry.

Unfortunately, it turned out that web advertising isn’t remotely as lucrative for publishers as print advertising was. Isaacson points to one reason:

the bulk of the ad dollars has ended up flowing to groups that did not actually create much content but instead piggybacked on it: search engines, portals and some aggregators.

Another reason is that web banner ads just aren’t as effective as print ads. A third reason is that there’s so much inventory online that it’s extremely hard to charge premium rates.

So yes, it might well be time to try to find a new business model. I don’t think that micropayments will work, largely because I haven’t seen any indication that the technology exists to make them work. But let’s be clear: the problem with the publishing industry is a drop-off in ad revenues much more than it is a fall in subscription revenues.