03-31-07 | Printable Version

When the News is Free

Guest Editorial by Walter E. Hussman, Jr., Publisher, Arkansas Democrat-Gazette

"We have met the enemy, and he is us." This quote is appropriately attributed to the newspaper comic strip character Pogo.

One has to wonder how many of the newspaper industry’s current problems are self-inflicted. One of newspapers’ major problems is free news.

News has become ubiquitous, free, and as a result, a commodity. Anytime you are trying to sell something that becomes a commodity, you have lost much of the value in providing that product or service.

Not many years ago if someone wanted to find out about what was in the newspaper, they had to buy one. But not anymore. Now you can just go to the newspaper’s website and get that same information for free.

The newspaper industry wonders why they are losing young readers. Those readers might be young, but many of them are smart. Why would they buy a newspaper when they can get the same information online for free?

Newspapers initially created their websites with the best of intentions. After all, newspapers didn’t want to be in the newspaper business, they wanted to be in the information business to survive and prosper. And rather than fight the new medium, the Internet, why not embrace it? Wanting to be the leading information providers and thereby have the most popular website in the community, they posted all of their news online for free.

Exacerbating the problem with free news was the decision by the newspaper industry, which owns the Associated Press, to sell AP copy to news aggregators like Yahoo, Google and MSN. These aggregators created lucrative news portals where the world could get much of the news that was in newspapers. So readers could now get free news not only at newspaper websites, but also from portals and aggregators that had a chance to monetize the content, most of which was created and financed by the newspaper industry.

With local radio and television stations also creating websites and posting their news for free, newspapers soon realized that much of the news on the broadcast websites was news that was created by the local newspaper. So, whereas before the newspapers were selling print ads while radio and TV were selling air time, now they were all selling the same medium: their websites. Since newspapers share their content with the Associated Press so other members can use it, radio and TV members are using much of that content to compete against the newspapers that created it.

Newspapers have for years been frustrated by radio stations which merely read the stories which are printed in that morning’s edition. TV stations often get much of their news from the newspapers, too. But reading it on the air is clearly different from posting it online, placing them in direct competition with newspapers’ websites.

All of this would be fine if newspapers generated lots of additional revenues from offering free news. But the fact is newspapers generate most of their online revenues from classified advertising, not from news. Gordon Borrell estimated that newspaper websites generated 78% of their revenues from classifieds in 2006.

It turns out that a website is a very different medium from a newspaper. While consumers often find pop-up ads a distraction and banner ads as more clutter, readers often seek out the advertising in newspapers.

The Inland Cost and Revenue Study shows that newspapers will generate between $500 - $900 in revenue per subscriber per year. (You do the math: divide your newspaper’s total revenues by your paid circulation.) But a newspaper’s website typically generates $5.00 to $10.00 per unique visitor per year. It may be that newspaper websites as an advertising medium, and free news, just can’t generate the revenue to sustain a valued news operation.

In fact, online revenues for the publicly traded newspaper companies in 2005 varied from 1.7% at Journal Register to 5.7% at Belo. The only company higher was the Washington Post at 8.4%. Yet newspapers typically spend 12% or more of their revenues on their news and editorial operations.

Our newspaper, the Arkansas Democrat-Gazette in Little Rock, does not offer our news for free on our website. We offer free headlines. On a few selected stories, we offer a few free paragraphs, designed to get people to read our paper. We also offer free classifieds.

Recently I had the opportunity to compare our website policy with the free news policies of other papers. For the six months ending 9/30/06, the newspaper industry’s circulation was down 2.8% daily and 3.4% Sunday. By contrast, the Arkansas Democrat-Gazette’s circulation was down 0.4% daily and 1% Sunday.

I was able to make another interesting comparison, too, with the Columbus (OH) Dispatch. Columbus and Little Rock are both state capitals. Columbus is a larger market, and the Columbus Dispatch’s circulation of 217,291 compares with 176,172 for the Arkansas Democrat-Gazette. Up until January 1, 2006, both our paper and the Columbus Dispatch offered news content only by subscription. We even charged the same price, $4.95, for an online monthly subscription, and both of us offered the same style electronic editions.

But Columbus dropped its subscription model on January 1, 2006 and began offering most of its news for free. Its web traffic and revenues certainly increased. But what happened to its paid circulation?

The six months ending 9/30/06 was a good comparison, since it compared six months in 2006 when the Columbus Dispatch had free news on its website compared with six months in 2005 when it did not offer free news.

The Columbus Dispatch’s daily circulation was down 5.8% while Sunday was down 1.1% for the six months ending 9/30/06. This compared with our loss of less of 0.4% daily and 1% Sunday.

When I looked at this comparison with Columbus, as well as the newspaper industry’s larger losses, it didn’t encourage me to change our website policy to free news.

So what are we doing with our website? We have hired a videographer to complement our text coverage in the newspaper. We have added photo galleries to increase the number of photographs beyond what we can publish. We offer an electronic edition where you can search the entire edition by keywords, something you can’t do in the print edition. And we offer breaking news e-mail alerts, something else you can’t do in print. In other words, we are offering value on our website that complements, rather than cannibalizes, our print edition.

Collectively, the American newspaper industry spends $7 billion on news and editorial operations. This includes everything from copy editor salaries to sports travel expenses. In addition, the Associated Press spent about $600 million worldwide in editing and creating news. By offering this news for free, and selling it to aggregators like Google, Yahoo and MSN for a small fraction of what it costs to create it, newspaper readership and circulation have declined.

These declines are accelerating. In 2004 and prior years, industry circulation declines were usually less than 1%. Since March 2005, these declines have been 2% - 3% per year. With declining readership comes declining ad revenues, which are followed by layoffs. The newsroom layoffs are most troubling, as less news with less quality, context and details results in more declines in readership and later, declines in advertising. If the $7 billion spent on covering news becomes $6 billion, and later $5 billion, it is not just the newspaper industry that gets hurt. Journalism will be diminished in America with less investigative and enterprise reporting; indeed, less reporting of state houses, city halls, school boards, business and sports. Clearly a lot is at stake.

It is time for newspapers to reconsider the ultimate costs and consequences of free news.