The paid content litmus test: do you work for a newspaper or a media company?

One hundred years ago the natural-gas industry faced the threat of a cleaner, safer, more efficient lighting source called electricity. Gas companies responded by developing the mantel, a small fiber sock that fit over the outlet and vastly increased the efficiency of gas lamps ... which eventually became a novelty.

By failing to see the bigger picture — that their industry was evolving — gas companies forever relegated themselves to being, well, gas companies.

So what type of company do you work for — a newspaper company or a media company? A litmus test is how your company views all those thousands of unique visitors who read the newspaper's content online for free. If the opinion is that they should either subscribe to the paper or pay an access fee, you work for a newspaper company. If the opinion is that the Internet presents a new business model that deserves time and resources, you work for a media company.

The decision to charge for Web access to the newspaper's content is the industry's equivalent of developing the gas mantel. In the long run, the newspaper is serving its core customers — subscribers — while ignoring an important new segment of non-customers.

What worries me most is that newspapers that restrict their Web sites are turning their backs on a very key segment of the population: younger adults, who use the Internet more than any other age group.

This is the very group that newspapers have been losing steadily since the 1980s. As this group has aged, they're still not subscribing. This gap is most evident in a chart published recently by the Pew Research Center for the People and the Press. The chart shows a widening gap in readership for 21- to 45-year-olds over the past decade.

This disturbing subscriber void appeared in the 1980s as the TV generation reached their 20s and began settling down. In massive numbers, they did not become newspaper subscribers. The trend continued in the 1990s as they reached their 30s, and the gap remained wide. The fact is, the younger adults, aged 18-34, dealt newspapers their largest circulation losses in the '80s and '90s. What will happen this decade as they mature into the most valuable segment of consumers — those who possess growing disposable incomes and the greatest propensity to spend?

The debate over whether to charge for access, as some have said, is a "red herring." The real debate is how to extract value from all those non-paying visitors.The answer is clearly user registration, not charging for local content.

Last fall we reviewed the record of 10 newspaper sites that were attempting to charge for Web access. In no case did paid online subscriptions exceed 2.6% of print subscriptions or registrations exceed 12.1% of print subscriptions. (see the December 2001 NewsFuture for more details).

Revisiting those sites recently, we discovered that the needle has barely moved on paid subscriptions but has surged forward on registrations. At the Tulsa World, for example, the number of paying online subscribers in the past eight months went from 1.4% of print subscriptions to 1.8% of print subscriptions, while registrations grew from 9.8% to 18.1%. At the Albuquerque Journal, paid online subscriptions went from 0.7% to 1.2% while registrations surged from 6.9% to 15.3% of the print subscriber base.

Registrations will continue swelling, especially if they are not linked to a mandatory newspaper subscription. As a percentage of unique visitors, registrations are likely to hit very high levels. Our research last fall of newspaper site users indicated that 75% would register for access. The Chicago Tribune, which instituted site registration a few months ago, is already halfway toward that figure, having collected hundreds of thousands of registrations. Even a small newspaper like the 52,000-circ. Fargo (N.D.) Forum began registering users and found that it captured 80% of its user base in less than six months.

There's no doubt that the movement to charge for content is gaining steam. Two years ago only two sites — Consumer Reports and The Wall Street Journal — could boast more than 500,000 paying consumers. Today there are at least five (American Greetings, RealNetworks, MyFamily.com and Netflix.com have joined the ranks), and more on the way. A recent Deutsche Bank Alex. Brown report on Yahoo! focused on the company's opportunity to develop paid-content services. The report estimated that Yahoo!, which is rapidly approaching $1 billion in revenues, can increase its revenue potential 33% by adding paid-content services (and indeed, it has added some).

So why shouldn't local sites try to tap into this content trend? The industry has to think of this in terms of the cable model, where consumers pay for "access" and get a range of channels for free, but wind up paying for only a few premium channels individually. Do you think anyone would pay for the local news channel on your cable system?

I suppose the real issue is not how to ply money from the tight hands of Web visitors but rather what we define as "advertising." Research we're conducting with Clark Gilbert, a professor in the Entrepreneurial Unit at Harvard Business School, has opened our eyes. What we previously thought of as advertising, it seems, has been narrowly defined as banners and upsells. Our competitors on the Web are gaining significant streams of revenue from very creative forms of advertising which really look more like consultation, marketing and services. Our research shows that newspaper companies are missing about half of the revenue categories out there. By missing half, I suppose that many newspapers are glomming to the only thing they know — the subscription model.

Charging for generic Web access to local sites isn't going to lead anyone to riches. It may, however, briefly improve the cost-efficiency of the Web operation ... just like the mantel did for gas lamps.

Links:
Pew Research Center: "Public's News Habits Little Changed by September 11"
Tulsa World
Albuquerque Journal
The Chicago Tribune
Forum
CNET: "Yahoo launches pay-for-play gaming"