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Sorry, Rupert Murdoch…Content Will Remain Free. Here Are the Facts:

2009 December 9

Rupert Murdoch, in a Wall Street Journal Op-Ed, once again proclaimed the advertising business model dead and the era of free content over.

There is no doubt that Murdoch is an astute business man.  He has made a fortune in media, much of it in tabloids and by cozying up to dictatorships in countries such as China and Russia.  He cynically titled the piece that he published in his own newspaper to further his business interests,  “Journalism and Freedom.”

Generally speaking, I’m a fan of Murdoch.  They say, “you can’t argue with success” and I usually don’t, nor do I want to.  However, in this latest episode his reasoning is so divorced from the facts that I have doubts as to whether he’s really serious.

I think his contention can be boiled down to this passage in the Op-Ed:

A business model that relies primarily on online advertising cannot sustain newspapers over the long term. The reason is simple arithmetic. Though online advertising is increasing, that increase is only a fraction of what is being lost with print advertising.

Well, not exactly…

Here are the facts:

Fact: Print revenues have increased since the dawn of the internet. According to ZenithOptimedia, US Print ad revenues from 1996 to 2008 have increased by $18 billion  (from $50 Billion to $68 Billion) and globally they have increased by $50 Billion.  (from $131 Billion to $181 Billion)

Some markets, such as the UK, have fared worse but when corrected for differences in market composition the story holds (more on that later)

Fact:  Print’s loss in market share has been less than Digital’s gain. During the same 1996-2008 period, US Internet ad share has gone from 0% to 10% while Print ad share has dropped from 44% to 32%.  By “simple arithmetic,” that’s a gain of 10% for Internet and a loss of 8% for Print which means the decline in print share has been less, not more, than the gain for Internet.

To be fair, globally Print shares have decreased slightly more than Internet has increased (12% vs 10%).  Still, to say that the the increase has only been a “fraction” of the Print loss is way off base.

Moreover, it’s important where the losses have come from.  Magazines have actually increased their shares, the loss has been completely restricted to newspapers.  This shouldn’t be surprising as the Internet has been very successful with classified advertising and not done so well with display advertising.

While it’s true that newspapers are in serious trouble, the problem for the industry has more to do with their historical reliance on classified advertising.  There are some fairly common sense ways to correct this and move toward display advertising, but newspapers have been slow to adopt them.

Fact: Much of the recent losses have been cyclical. The trends mentioned above are long term trends.  The short term trends since 2007 look much worse for Print.

This shouldn’t be surprising as magazine display advertising is highly dependent on durable goods, which drive the business cycle.  In a downturn, people put off long term purchases and so it’s inevitable that advertising expenditure in those categories falls off in a recession more than in the general market.

Furthermore, recessions create bloated inventories.  Companies that need to empty their warehouses will focus more on direct response sales promotions and less on the display advertising that is Print’s forte.  In a recovery, this trend is reversed. (and Magazines did gain share during the last recovery).

Fact: People don’t actually pay for print content. While there are exceptions, for the most part publishers don’t make money on distribution and in many cases actually lose money.  This is especially true with US magazines, in which roughly 85% of circulation is sold through highly subsidized subscriptions.

In effect, we’re usually paid (albeit in paper, ink, gas, etc.) to read print content.

Fact: The Internet Makes things cheaper. On the web, anybody can publish (even me!).  The notion that an increase in competition will not decrease prices fails to recognize a simple rule of economics.  To believe that consumers will start paying for content assumes that the increase in demand will exceed the avalanche of supply.

Fact: Consumers show no aversion to ads. My wife complains about me all the time (with good reason), but I know she really loves me (at least she hasn’t divorced me yet).  Consumers have a similar relationship with ads.  They complain and watch, complain and watch.

Although counter-intuitive, the evidence with DVR’s shows that even when people have the capability to skip ads, they watch them to a much greater extent than anybody expected.

While this seems incredible, it starts to make sense when you imagine a world without ads.  Actually, in some places in the world, they don’t have to imagine it.  They actually experienced it and, as this Polish ad shows, the picture wasn’t pretty.

Without ads? We already know

Without ads? We already know

If consumers show no inclination to avoid ads, why would they agree to pay for content?  Unless the content is highly specialized, experience shows that they won’t.  Moreover, to attract ad money, most content creators are zealous in their pursuit of traffic from content aggregators.

Fact: He’s Hedging. If anybody wants to read Murdoch’s piece for themselves but don’t want to pay for it, no problem!  Just go to this page on the site “All Things Digital” and you’ll find a preview and a link to the Op-Ed on the Wall Street Journal. Don’t worry, Rupert won’t mind.  He owns “All Things Digital” and the site is completely free!

The Way Forward

The truth is that there is nothing wrong with the advertising model.  Yahoo!, which is largely free content ad model as you can get,  generated nearly $2 billion in free cash flow even during the crisis year of 2008.  Facebook also looks poised to become profitable (although Murdoch owned MySpace does not).

The problem isn’t with the model, but the way in which many media moguls of the past run it.  As I wrote previously in How Great Media Companies Fail on the Internet, traditional media companies will need to change the way they operate their companies if they are to be successful in the new, digital world.  (Hint: overpaying for digital properties and running them into the ground is not a recipe for success).

There is no doubt that Digital Media poses a great challenge to incumbent media companies.  As Murdoch himself said in the same piece, “Some newspapers and news organizations will not adapt to the digital realities of our day—and they will fail.”

So, Rupert, take your own advice:  Stop whining and start adapting.

(btw. Thanks for The Simpsons.)

– Greg

55 Responses leave one →
  1. December 9, 2009

    When Murdoch talks about online not growing fast enough to make up for print declining, he’s specifically talking about online newspaper revenue and print newspaper revenue, not overall online and print. Of course online grew faster than print declined, but that includes Google, Yahoo, MSN, AOL, etc. revenue. And all the newspaper barons are concerned with are their own online P&L’s.

    [Reply]

    Greg Reply:

    JB,

    What you say it’s true, but I don’t see how it makes a difference. It’s a bit like saying: “We need to make money because we are unable to make money.”

    – Greg

    [Reply]

  2. December 9, 2009

    Hi Greg, enteraining piece, but it is seems to be attempting to make case for ad funded versus paid for content on rather weak and ever so slightly manipulated/selective evidence perhaps?

    RM did not say that paid-for content will replace ad funded – only that the balance will shift in the paid-for direction. Our organisation works closely with media and publishing enterprises across the globe and the majority of our clients are reorganising their busines models to a more balanced paid-for/sponship/ad funded model. Only yesterday, Axel Springer announced they were going down a similar path to News International, Every major Newspaper and commercial TV business in the UK and beyond is looking at paid-for revenue models with a view to forming hybrid revenue generation strategies in the future. The tides comming in my fried – resistance is futile.

    I find your contention that people like ads to be ridiculous in the extreme – maybe ad-media luvies and marketing execs like that mindless tripe to flow over them, the rest of humanity has to grin and bare it. The person who invents an ad fltre for live broadcast TV will become very rich indeed ;-)

    Best regards,
    and keep on blogging!

    Patrick.

    [Reply]

    Greg Reply:

    Patrick,

    Thanks for your comment.

    Obviously we have different views, but I would just like to clear up a few points.

    1. I agree that Murdoch never said that ads would disappear. However, he clearly thinks that media will be more competitive with a paid or partly paid model. Moreover, he claims it’s “simple arithmetic.”

    He might be right (and probably is for a minority of products, and WSJ is probably one of them), but there is no evidence for it. In fact, the overwhelming evidence suggest just the opposite for the industry as a whole.

    2. Yes. All publishers would like to be paid for content and get ad revenue. I would like a date with Pamela Andersen. I’m sure some people do actually date Pamela, but the vast majority do not and will not.

    3. The ad filter for broadcast TV has been invented. It’s called a DVR (or TiVo). People watch ads on it to a much greater extent than anybody ever expected. (There’s a link in the article).

    – Greg

    [Reply]

  3. Tom permalink
    December 9, 2009

    Greg

    I totally agree that the paid content model that Murdoch is alluding to is flawed.

    The failing of the total print media environment is based on print publishers (largely newspapers) inability to provide efficient and innovative solutions to advertisers and your first fact bears this out.

    $18 billion in growth over 12 years is great, but when annualized that number translates to less than 3% growth in revenue a year, which was likely accountable to rate increases imposed by publishers who kept raising advertising rates and justified those increases due to increased cost of distribution.

    Publishers kept raising their print advertising prices even when their audience was shrinking and while an increasing number of more efficient options were being made available to their advertisers.

    [Reply]

    Greg Reply:

    Tom,

    Good point. I agree 100%. Most publishers are way, way behind the curve.

    However, some are starting to put out nice products. Conde Nast has really seemed to turn around (they WERE absolutely HORRIBLE). The Atlantic also seems to do a very good job on the web (although I don’t have financials for either company, so I really don’t know).

    Anyway, my point wasn’t to congratulate publishers for sitting on their ass, but to make the point that while Murdoch is alluding to a supposed universal rule, he is really just promoting self interest and situational reasoning. He’s not up on his soapbox for the Daily News or the Sun, is he?

    Thanks again for pointing that out.

    – Greg

    [Reply]

  4. December 9, 2009

    Interesting article but you may want to make a correction.

    In the section, ‘Fact: Print’s loss in market share has been less than Digital’s gain’ you state that “Print ad share has dropped from 44% to 32%” then in the next sentence say this is an 8% drop. You may want to check you math or your numbers because one of them is off.

    [Reply]

    Greg Reply:

    Q,

    One of the numbers was for US, on was for Global. Sorry, if that was unclear. Both numbers are correct.

    – Greg

    [Reply]

  5. Jim Fox permalink
    December 9, 2009

    Good points Greg as always however I do have agree with Murdoch to a certain extent. As far as consent goes “you do get what you are pay for”

    I had the bad experience of running tech site for a few years with paid writers the ad revenue model just did not cover the expenses when it was all said and done and the paid writers had to go. Needless to say the quality of the information suffered in order to write a truly good article is takes time, resources, and talent. Just because anyone can publish on the web does not mean everyone should. Anyone could buy a typewriter as well but how many great novelist have we had over last 100 years? I am reminded of the saying if you give 100 monkeys typewriters enough bananas and 1000 years they will recreate Shakespeare. Most of the content on the web is poorly written (myself included) and is not worth paying for.

    However good quality content will always fetch a premium as well it should not everyone can create quality. I know Bloomberg is growing they charge $1,800 a month per user for their content but Bloomberg has been investing in good editors over the past couple years. WSJ is gone down in quality since Murdoch took it over use to be the best at in-depth coverage now for the most part a few paragraphs not as well written and out. If Murdoch does want to charge for content it does need to be worth paying for.

    Jim

    [Reply]

    Greg Reply:

    Jim,

    You make a very good point (although my experience has been different with respect to running profitable content sites).

    However, I don’t think it’s an issue of quality so much as specialization. Specialized content is much more likely to be paid for (there are exceptions, like HBO).

    What irks me though is Murdoch’s disingenuousness. He makes the case for “simple arithmetic” only with WSJ. If it was so simple, he would do it will all his products. Moreover, as I mentioned, while he rails against content aggregators, you can easily get to his oped (and other WSJ articles) on HIS free sites.

    If he said, I’m going to do this with WSJ because it’s strong enough that I can get away with it, I wouldn’t mind.

    – Greg

    [Reply]

  6. John MacDonald permalink
    December 10, 2009

    Sorry to nitpick, but to say, “Although counter-intuitive, the evidence with DVR’s shows that even when people have the capability to skip ads, they watch them to a much greater extent than anybody expected” avoids the question, ” But do they watch to ads to a great enough extent to justify the cost of the content they surround?” Every study I’ve seen, (and behavior I’ve experienced for that matter), indicates that ad-skipping occurs in more than 50% of DVR homes. As penetration approaches 50%, that’s at least 25% of revenue (excluding C+3 credit), that must be replaced. Hard to do in such a competitive space. I too think Murdoch a visionary, (used to work for him), but his thesis is, I think, essentially correct. He omitted the phrase, “…in its current form” to the phrase, “..sustain newspapers over the long term.”. Otherwise, I believe he’s right.

    [Reply]

    Greg Reply:

    John,

    I’m not sure that’s right. According to Nielson, DVR penetration is already 30%, but accounts for less than 5% of viewing. So using the same math as you do, 60% penetration would only result in 5% of revenue lost.

    That probably isn’t accurate, but my point is that the problem is much smaller than most people assume. Trends can change, but the overwhelming evidence is that although people complain about ads, they seem to be very willing to watch them.

    In any case, ad revenues will most likely start going up again next year, and print usually outperforms in a recovery (which might take a bit longer). Most likely, this is a short term issue.

    Another point is cost of content. You would know more about this than I do, but it seems to me that the content is greatly a function of revenue. Programming doesn’t actually cost that much to make, it’s the talent that’s expensive. Talent is expensive because it gets bid up (which is why production costs vary so much from country to country).

    Finally, Murdoch seems quite happy (and profitable) with the ad model everywhere except with the WSJ. His newspaper business had nearly $800 million in operating profit last year, even in a crises (I’m not sure if WSJ is included, it isn’t broken out on the 10-K).

    As I said, I really don’t think he’s serious. He makes a big deal about aggregators, but then aggregates the content on HIS free sites. He’s not pushing this with the Daily News or the Sun either.

    In the end, this is probably Rupert just being Rupert and trying to get the best deal he can get. I don’t think it’ll work this time (it doesn’t always for him), but his timing is good. If there was ever a time to pull this, now is the time. He has a lot to gain and nothing to lose.

    (btw. He also took the opportunity of the crisis to take an $8 billion impairment charge. Expect record profits in the years to come!)

    – Greg

    [Reply]

  7. December 10, 2009

    The subtext missing from RM’s commentary is that he has signed a deal with Microsoft for them to pay him for the content to be published free in Bing on condition Google access is restricted. He’s totally disingenious, he’s using a profitable business deal as an excuse to have a rant. You can’t restrict content on the web – even DVD’s, with all their in-built copy protection, end up as bit torrents. A few pages hidden under a subscription system will just end up published in India or China.

    I wouldn’t be surprised at ol’ Rupert’s tactics. I grew up, as he did, in Australia, where he has a well understood reputation for covering commercial self-interest with claims of the greater good. In Oz, no one takes his public statements too seriously.

    [Reply]

    Greg Reply:

    Brandt,

    I didn’t know about the Microsoft deal. Thanks for the info!

    – Greg

    [Reply]

  8. December 10, 2009

    More info on the deal can be seen in the Financial Times article at http://edition.cnn.com/2009/BUSINESS/11/22/microsoft.news.google.ft/

    It seems Microsoft are approaching other big publishers as well.

    It doesn’t matter to Microsoft if they make any money on the deal, they’re prepared to lose billions if it’ll kill Google. Microsoft always play the long game.

    [Reply]

    Greg Reply:

    Brandt,

    Thanks again for the info.

    – Greg

    [Reply]

  9. geudy permalink
    December 10, 2009

    Murdoch is one of the embodiments of evil on earth and likes of him cannot have any word on the medium that is called internet, which by definition and in its function is and will be an anti-thesis of what Murdoch has been representing.
    whatever “pearl” Murdoch drops about Internet is to be taken no more seriously than any speech of a present-day dictator on how democracy is to function on earth.
    it would be too much recognition for someone who is the archetype of all that one cannot bear to see, and is thankfully obsolete as regards media today.
    gladly true, there are avalanches of free online social media, which will remain democratic and free for everyone.
    and even these attempts of old empires won’t help change this..

    Murdoch knows that he can’t make it on his own this time, and seeks allies with numbers like this. let them give it a try, maybe it’ll be faster a way to get rid of bunches of them..

    [Reply]

    Greg Reply:

    Geudy,

    That’s a bit harsh, although I have to admit that Murdoch wrapping himself in “Journalism and Freedom” is rather irksome.

    – Greg

    [Reply]

  10. December 10, 2009

    Slightly off-topic, but Geudy’s comments about Murdoch are, while strongly worded, not far from general public opinion in Australia and the UK, where it is widely recognised he, not the public, select which party wins the election. With near total domination of the print media in both countries, no party has won an election without his support in either country for over 20 years. Over here, we generally know who will win by who he’s having dinner with 6 months in advance. Murdoch’s involvement in politics has been a key element in his business success, and why he has been one of the few media moguls given access to Chinese media ownership. Perhaps his antagonism for the web is related to his failure to stop Obama, the first western politician to prove how the web can circumvent vested interests in traditional media?
    And by the way, “evil” as RM may (or may not) be, we said the same thing about Randolph Hurst a hundred years ago. Media moguls always throw their weight about, and people always hate them for it. And Hurst hated and tried to stop radio, just as every media dominator tries to fight the next wave of technology, going all the way back to the church banning the printing press (and being hated for it). It’s all very traditional…

    [Reply]

    Greg Reply:

    Brandt,

    Thanks again for your thoughts. A few points:

    1. What is it with OZ? Every media mogul down there seems to be controversial. Dingos all?
    2. Murdoch tried the same in Russia, but failed. Reportedly, he’s getting out. He does have some strange holdings in the Ukraine.
    3. Hearst was sort of evil. He started a war for personal gain.

    With that said, I’m generally (but not completely) a fan of News Corp. The guys tend to be very tough, but highly competent and professional.

    – Greg

    [Reply]

  11. December 11, 2009

    Why is this an either/or question? Somebody has to pay or we’d all just be doing this as a hobby. When big consumer magazines were still strong (the really big ones collapsed well before I got into the business) there was a trade-off in circulation cost and advertising revenue. Paid circulation was a cost-center but the marginal cost of the additional rate base could start to exceed the marginal gain in advertising profit. And advertisers correctly perceived less value in the less committed readers so they did not neccessarily go along with rate base increases.

    [Reply]

    Greg Reply:

    Roger,

    I don’t think it is an either or question for the industry, some products are better suited to paid circulation. However, for most products, consumers have shown that they are very willing to put up with advertising and not very willing to pay.

    That could change, but there’s no evidence that it will. This isn’t the first time the debate has come up, and the ad model marches on.

    – Greg

    [Reply]

  12. John MacDonald permalink
    December 11, 2009

    I think the point of generalizations being dangerous is relevant here too. At MTV the numbers were slightly different. DVR homes were about 45% of our target demo (P12-34) and those who had DVRs watched 30% less MTV, (the MTV audience is obviously different from the broader audience, and more willing adopters of technology to manage their media consumption as compared to the general population). But even if you only assume a 5% revenue hit, you touched on a good point about the cost of programming which is growing at more than 5% per year so the margin effect is -10% or worse. And while it’s correct to say the most of the programming cost (and increases) are tied up in talent fees, programmers in film and TV have been either unable or unwilling to rein in these costs. The ad market will no doubt come back to growth next year after a lousy 2009, but I fear the underlying fundamentals of the business have been altered forever.

    [Reply]

    Greg Reply:

    John,

    I didn’t mean to say that the problem wasn’t real, just that it isn’t as big as many imagine it is.

    Programming costs are an interesting issue. Obviously, they can only charge what broadcasters are willing to pay, and that willingness is driven by ad revenues. You can’t get blood from a stone.

    However, it’s quite possible that value is shifting from distribution to content. A broadcast license used to be a very valuable thing and broadcasters had an immense amount of bargaining power. That has eroded and will erode further.

    In any case, the reality is changing and everybody has to adapt. Whining and (in Murdoch’s case) wrapping the issue in “Journalism and Freedom” is counterproductive.

    My favorite example lately is Conde Nast, who were incredibly clueless about the web (they had once even sold the digital rights of Wired).

    In the past year, they have made an enormous turn around. Their magazine sites have gone from being barely functional to very good web products. Their social web site, reddit.com seems to be gaining traction as well. I haven’t been able to get financial information, but product wise it’s been a complete (and fast) turn around.

    I’ve been amazed how many media companies fail to follow even the most basic usability rules, much less develop a good business model. (btw, not to nitpick, but navigation should always be below the banner).

    Most likely, this will be like the last recession. Inventories have shrunk. The recovery will bring a slew of new product launches to satisfy pent up demand (car sales have been well under replacement rates, for example) and display advertising will surge for a year or two. Those revenues, like the last time, will mostly be invested in complacency.

    And the story goes on…

    – Greg

    [Reply]

  13. Axel Schultze permalink
    December 11, 2009

    Sorry Greg Satell … you will have to pay

    YES, clearly, the advertising model is dead and here are more facts:
    http://ceaseadvertising.com
    And I agree that content (in it’s raw form) will remain to be free too. But I don’t fill raw oil in my car but need to refine it to get anywhere fast. Somebody need to help me refine news and other content too. And if that is done right, I’m happy to pay!
    I very much doubt that Murdoch or the WSJ are the ones who can fix it – but somebody will – eventually.

    Axel
    http://xeesm.com/AxelS

    [Reply]

    Greg Reply:

    Axel,

    If the advertising model is dead, why does it make money and why do companies spend more on it every year?

    – Greg

    [Reply]

  14. December 11, 2009

    Hi Greg,
    great article, a great factual analysis of a technical subject. With just enough opinion!

    I propose an additional assumption that can account for the 2% difference between prints losses and digitals gains (‘Fact: Print’s loss in market share has been less than Digital’s gain.): much of what Print does (did) at cost (The Trading Post), Digital does (did) for free (Craigs List) or at least more efficiently (ebay). Not to say that The Trading Post is(was?) Murdocks bread and butter.

    Revenue generation from digital is simply in an ‘adolescent’ phase, both in terms of pure innovation to facilitate the revenue collection; and in terms of users – advertisers and consumers – usage and perceptions – I think that there will be no SINGLE answer, it will be a convoluted montage. Somewhat like the repackaging of mortgage backed securities (god forbid). Or, what I prefer, a shift back to ‘community radio’ style operations, in which blogging / RSS lurches to the fore.
    K

    [Reply]

    Greg Reply:

    Keir,

    I agree. At least up till now, the internet’s success has mainly been with classifieds and direct marketing.

    – Greg

    [Reply]

  15. December 11, 2009

    @Gregg – I just don’t trust the numbers that it is increasing every year. I trust what companies tell me that they decrease it as much as they possibly can, they decrease it due to lack of effectiveness, publicly stated by Virgin, ATT, Dell and so many others. It’s not that they don’t have the money it is that it doesn’t have any effect any longer.

    I was a huge proponent of advertising, made some of the best selling campaigns with our agency… But we are totally over fertilized with advertising – that’s why it is dead. OK there is still money to be made in the next few years – but do you want to be last, turning off the light?

    [Reply]

    Greg Reply:

    Axel,

    I just go where the data tells me. It doesn’t really matter to me where that is.

    – Greg

    [Reply]

  16. John MacDonald permalink
    December 12, 2009

    The $64,000 question: how bad will the problem ultimately prove to be. Stay tuned, (please stay tuned). One thing about programming costs, as I think we discussed previously, is how profit margins on shows change over the life of a show. While you would think that networks will only pay as much as they can recoup in advertising, loss leaders are also a reality in the TV business, and networks will often pay more than they can recoup on a show, as it creates value to adjacent inventory and provides a large promo platform for other programming. And we know that programmers are frequently motivated by fear, which often drives they to “overpay” for talent that they believe may give them a better chance at success.

    I do think that the pendulum has swung back in favor of content creators and away from distributors (networks, etc.) for the time being. Another thing to watch will be the emergence of promo/marketers who are able to demonstrate an ability to get programs found in this ever more fractionalized landscape, as mere scheduling adjacent to other established programming becomes less effective in the increasingly on-demand media space.

    [Reply]

    Greg Reply:

    John,

    That’s an excellent point. I have noticed that major media companies are taking huge “impairment charges” over the past fiscal year. I’m not sure how much of that is real restatements of goodwill and how much it is just using the crisis to clean up balance sheets.

    In any case, it is a real problem. (Sorry if I implied that I thought it isn’t). However, there are real opportunities as well.

    One of the big drawbacks to TV from an advertiser standpoint is the lack of proximity to point of sale. This is a big selling point for Outdoor and Radio. So mobile Video snacking is a big opportunity as well as the opportunity to tap into to the communities that spring up around programing.

    Having worked in and seen how media operates in many different countries, I’ve become convinced that for any given market, the problems and opportunities pretty much even out. Every environment has it’s own challenges.

    – Greg

    [Reply]

  17. December 18, 2009

    Have you considered the effectiveness of targeted on-line ads increasing as they are put behind a paywall? Yes, the number of readers may decline (initially at least) but I believe the quality will exponentially increase. If I choose to pay to read an article on a certain subject and you therefore target me with a relevant ad I believe the chances of that leading to a positive outcome are greatly increased, as opposed to slinging as many randoms ads in my direction hoping for a positive result.

    With regards to creating the paywall; we do pay for content now, eveytime we hand over money to buy a newspaper, a magazine and cable / sky TV. The Society needs to realise that editorial content on the Internet is someones property and its creation is at a cost, for that we may need to pay.

    [Reply]

    Greg Reply:

    Jamie,

    With regards to ad effectiveness, no I haven’t considered it. However, If I ever come across any data that suggests that paywalls increase ad effectiveness, I will.

    As to your second point, I think there is some confusion between paying for distribution and paying for content. We actually very rarely pay for content and often distribution is subsidized by advertising revenues.

    There are exceptions and they are important ones. However, I don’t see how the internet, which creates more competition and negligible distribution costs, will result in people willing to pay for content that they didn’t have to pay for before.

    – Greg

    [Reply]

  18. December 18, 2009

    “Society needs to realise that editorial content on the Internet is someones property and its creation is at a cost, for that we may need to pay.” ?????

    No it doesn’t. Society will do what it likes and businesses can fall into line or die. People don’t care. They absolutely hate ads, something marketing people cannot grasp. They are exposed to advertising purely because they can’t avoid it. Online ad blockers, cookie cutters, the mute button on the TV remote, TIVO, Sky+, channel surfing during ad breaks – all common behaviour showing that people want to avoid all forms of advertising if they can. They don’t care if content costs someone else money to produce. Not their problem. Do you think there would be a public day of mourning if RM’s empire collapsed?

    And they don’t care if it’s someone’s property – they want it for nothing, and can usually get it. They copy-paste content, bit torrent video and will use anything they can to get it for nothing. People will only pay for content if they have to – for formal research or for work (when the boss pays). There is so much content for free, content has lost all value. If you printed all the webpages in the world onto paper, they would form a stack 2,000 miles high. A 50-page website would get less than a quarter inch in that stack. No matter who you are in your market sector, on the web you’re nobody and your content is worthless.

    Coming into marketing from journalism, I am continually shocked at how little marketing people understand about their audiences. Folks, nothing personal, but you are down there with lawyers and used car salesmen in public opinion. Your audience hates you, thinks you are immoral every time you push an ad at them they don’t want, and can’t see any difference between behavioural targetting and creepy stalking.

    This is not my personal opinion, though I think some aspects of behaviourial targetting are unethical, but I’ve found my marketing more successful if I design it on the basis people will hate it and find it unwelcome unless I take active steps to compensate.

    [Reply]

    Greg Reply:

    Brandt,

    Interesting perspective.

    – Greg

    [Reply]

  19. December 18, 2009

    Whilst I cant disagree with your view in its entirety I dont think that we are all quite so militant about our dislike of advertsing – a necessary evil yes, but we are a consumer society who cant get enough of the brands around us.

    Quality and engaging content is of value to readers, people will pay for it, FT.com a case in point. Anyone can rant on a blog, trade web-site but the trusted news sources ala The Times, FT, Economist, etc have over decades offered a trusted and worthy source of information for those of us who want to understand and be educated about the world around us.

    the only problem is how we deal with the BBC!

    [Reply]

  20. December 18, 2009

    Greg:
    Regarding the potential premium for marketing access to a paid audience, it exists in other media and I don’t doubt that it already exists on the web although it may not look like advertising. In events media, which is my specialty, marketers of high priced, high margin goods and services will pay dearly for access to a seriously committed, smaller audience. The media producer faces a trade-off between net benefit of acquiring the marginal paid audience or the marginal marketer. For any particular opportunity the business model is a mix and match proposition.

    Roger

    [Reply]

    Greg Reply:

    Roger,

    It makes sense in conferences, because that’s also a function of personal contact. However, in media, I’ve never seen, nor heard of, any data that suggests that a paid audience is more valuable than a free audience (except of course, to the publisher).

    – Greg

    [Reply]

  21. December 19, 2009

    Greg:
    Events are a media platform, another medium of communication, for many information producers and marketers. The face-to-face power of event media is a selling point to big ticket marketers but one can also sell the seriousness of the audience based on what they pay to participate. I know from my own sales experience that people buy this argument (which seems intuitive but may be wrong, to your point about the lack of data).

    With the growth of hybrid events combining face-to-face and web audiences, we’ll see the proposition tested. Access to event content on the web is being priced all over the map from free to close to the in-the-flesh price. The value to sponsors and exhibitors of the smaller paid audience in the paid format hybrid will be tested against free format hybrid in the market place. They are both out there now. I suspect that business models will evolve as a mix and match propositions with no clear winner for all markets.

    Roger

    [Reply]

    Greg Reply:

    Roger,

    I couldn’t agree more and would even go further.

    One of the trends that all of the social media hype obscures is the rise in “nontraditional” media promotions centered around events. A friend of mine runs a new division at ZenithOptimedia called “Newcast” that focuses on this area. While the rest of the industry has been in recession, he’s spent the last year doing a global roll out.

    – Greg

    [Reply]

  22. December 24, 2009

    Insightful commentary. When I heard a story recently on NPR about newspapers turning to a paid online model, my heart sank. These are smart guys, I thought. How could they be getting it so wrong?

    I don’t know about the WSJ, but Bloomberg is successful because the product is distributed in a medium that is unique (the terminals), the information is rare and somewhat difficult to find elsewhere, and the audience of financial professionals has deep pockets. No other media company has that unique mix of attributes.

    I’ve worked in a variety of media, from high-priced niche newsletters to online mass consumer web sites to print magazines, and I agree that the paid model is dying. As a veteran journalist, I wish people would pay for content, but it just isn’t happening.

    I also followed the Nielsen DVR story, and I believe people do find the commercials entertaining. How else can you explain the success of QVC?

    Stephanie

    [Reply]

    Greg Reply:

    Stephanie,

    Great points. The fact that free content will continue to flourish says nothing about the ability of paid models to do the same. Bloomberg does indeed have a great business as do other paid and freemium businesses.

    As I’ve said before, the real trend has been and will continue to be toward greater diversity.

    – Greg

    [Reply]

  23. December 24, 2009

    I’m curious to see what those other diverse models are. In the old days, when the process of producing content was a bit of a mystery, you could charge for things based on the packaging.

    I’m thinking of people paying $15 more for audiobooks than they pay for the same content in print. Or paying $150 more for that same content packaged as part of a “membership” or high-priced newsletter.

    In those days, it was about the sell and the package. Online today, I don’t know of many models that successfully charge outside of highly-specialized content for niche professionals.

    Are any mass publishers really making money on content? Please share!

    [Reply]

    Greg Reply:

    Stephanie,

    All I can really say is that after having worked with many different companies in many different markets, at this point, I’ll believe anything. The number of successful models is truly endless.

    What is truly important is not the model, but how you tweak and refine it to suit your business. As I wrote in this article about how successful digital businesses are really built, it really is a process of trial and error. The worst thing you can do is to believe in a “secret formula” out there somewhere or to get married to one particular idea or another.

    When you think about it, that’s a really great thing. Great business models aren’t something for us to learn, but to discover and to keep discovering. It’s what makes the whole thing so much fun:-))

    Happy Holidays!

    – Greg

    [Reply]

  24. December 24, 2009

    Amen to that!
    Happy Christmas to you too.

    [Reply]

  25. webbbbbbbbbbbb permalink
    December 29, 2009

    The problem is that Web ads are so CHEAP compared to print ads: 75 cents per thousand views for “remnant ads” — those not purchased by a sponsor of a homepage or section. Compare that to the thousands of dollars a single display ad in print brings.

    Charging is about protecting the newspaper which is still the only revenue source capable of funding the expensive newsroom and news-gathering process.

    A metro daily’s biggest competitor is its own free Web site.

    I don’t think walled pay content is the way to go. I don’t know any way to increase revenue.

    [Reply]

    Greg Reply:

    On the other hand, successful sites can charge up to $100 CPM’s for high demand areas.

    – Greg

    [Reply]

  26. webbbbbbbbbbbb permalink
    December 30, 2009

    Drudge never hits the sponsored areas, that spike goes to an unforeseeable-hit newspaper story and the hordes deliver $100 in revenue to the news site.

    [Reply]

  27. January 8, 2010

    Greg, you have valid point. The prime issue is not if the content is free or not, the prime issue is ability of content provider having a billing relationship with consumers. Any business which grows exponentially without any billing relationship with end consumer can also fall rapidly.

    Wikipedia is under huge stress and the fact that it got bailed out by consumer generosity cannot be successful business model.

    Regards, Lalit

    [Reply]

    Greg Reply:

    Lalit,

    Thank you for you comment. Although, it should be pointed out that Wikipedia has always been a non profit organization and therefore has always relied on the generosity of users.

    – Greg

    [Reply]

  28. jamie permalink
    March 31, 2010

    I just got sent this and thought that it followed my view quite closely:

    Times paywall makes a lot of sense to me
    Tue, 30 Mar 2010 | By Suzanne Bearne

    It seems silly that people keep banging on that The Times will see a dramatic
    fall in online readers when it brings in its paywall in June. Of course it will.
    But with online advertising in its current form not bringing in significant
    revenues, why can’t we champion News International for being so brave?
    I’m not expecting every single publisher to follow suit, and of course News
    International needs to offer a slicker and worthwhile experience for the money,
    in terms of usability and content. But this model has been thought through for
    months by commercial chief Katie Vanneck’s customer direct division. This isn’t
    a spur of the moment, ill-thought-out decision. There’s intelligent rationale
    behind it.

    First, News International is well aware the bulk of users will depart. But
    actually, who cares? With an increasing number of publishers talking about how
    people who dip in and out of a site are becoming less valuable to them,
    perhaps this decision is on cue.

    The remaining users who love the brand – perhaps up to 5% of Times Online
    traffic – will become its bread and butter. Remember, newspapers don’t gather
    the millions of people in circulation their online operatoins boast but they
    attract a regu4lar, loyal readership.
    So this loyal online userbase will be worth a substantial amount. They’ll have
    provided more personal details which can be used to target them with more
    relevant ads and offers.

    And the site will still get some extra traffic from the free-to-access home page.
    I think News International spot on with its pricing model too. Currently 20m
    unique users access Times Online. Even if this drops to 100,000 subscribers
    paying £2 a week, that’s revenue of £10.4m a year, excluding advertising.
    However, I would have preferred a similar model to The Financial Times, which
    teases users to sign up by allowing free access to a small number of articles a
    month.

    This is a space we’ll all be watching with interest. If such a model turns out to
    be a success for News International, it could have a domino effect on its rivals.

    [Reply]

    Greg Reply:

    Jamie,

    I guess we’ll see, but 10 million pounds is peanuts if that’s what they’re shooting for, they will certainly fail.

    Paid models work for a small fraction of media, which is how the advertising model got to be so popular in the first place (the vast majority of newspapers and magazines lose money on distribution). Meanwhile there are plenty of sites who make serious money without paid content so unless you are offering something truly unique, people won’t pay.

    – Greg

    [Reply]

  29. March 31, 2010

    I have worked as a technical advisor for lawyers for Times Online where they have sued newspapers in other countries for copying their material. I can’t name them for legal reasons, but the Times lost most of those cases because you have to prove intentional theft of the material directly from the original Times Online site, and that the material was read in a country with reciprocal copywrite arrangements with the UK. For example, if the material is republished in China or Indonesia, there’s almost nothing you can do.

    The reason Murdoch’s idea is dumb is that it’s unworkable. All it does is create a niche which will be filled by unreachable companies stealing and reprinting the “subscription” material. Murdoch simply can’t protect his content – technically or legally.

    It shows a fundamental lack of understanding of the web, and a desire to impose out-dated business models on it. Advertising may, or may not, support online newspapers – time will tell. But the root of the problem is the cost of content production in old-world newspapers, which is geared around a heirachical reporting structure organised for daily or weekly publication, and employing highly trained writers at considerable cost, while also maintaining a vast printing operation. Online video has shown that people are often happy to sacrifice quality for availability or immediacy. I can’t pretend to have a solution, but the structure of 20th century news organisations looks inappropriate to the web to me. We all know there’s a better solution, just no one has thought of it yet. The person who does will be the first Rupert Murdoch of the 21st Century.

    [Reply]

    Greg Reply:

    Bradt,

    Your points are well taken. However, I do not believe that Murdoch is dumb. I do however, believe he is disingenuous.

    The WSJ was a “leaky wall” long before he came along and, I think it’s clear that it’s one of the few products that can succeed that way.

    Moreover, his point isn’t that people are copying his stories without attribution, but that links are being aggregated – a position that would be ridiculous on its face even if he did not do the same himself. Finally, if he really believed in his case, he would switch ALL of News Corp’s publication to a paid model, something he has no plans to do.

    What’s annoying is that he cloaks himself in a stupid argument about journalistic integrity (again – ridiculous on its face given the source).

    Web news businesses can be quite profitable (I should know, I’ve run one), but whining won’t do the job.

    – Greg

    [Reply]

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