Can newspapers survive in the online age?

By Associate Editor David Stevenson Aug 14, 2009

David Stevenson

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Rupert Murdoch, stung by heavy losses, is making plans to charge for online news content. But will people pay for what they can get free elsewhere? David Stevenson reports.

What's going on?

"Having changed the face of British newspapers in the 1980s and 1990s, media mogul Rupert Murdoch has now turned his attention to the world of online news," says Tony Bonsignore on Citywire. For years, readers have paid for hard copy, with online access free.

But that means readers can opt to visit news publications' websites "rather than splash out for the physical thing, which often feels out-of-date by the time you've bought it". But websites are expensive to run and Murdoch has now had enough. "We intend to charge for all our news websites," he says.

What's prompted the move?

Money. Murdoch's global media giant News Corporation has just reported a massive $3.4bn net loss compared with last year's $5.4bn profit. Huge charges totalling $9.2bn, relating to drops in the value of the group's assets – notably for Dow Jones, The Wall Street Journal's parent – did the main damage, but weren't the only culprit.

Full-year operating profits dropped by almost one-third, with advertising revenues plunging and income from films, newspapers and magazines all falling, too. Murdoch's admitted that his newspaper business model "is on the edge of the cliff face", says Elizabeth Knight in BusinessDay, and "that it needs to be changed or face commercial extinction".

And Murdoch's not alone. The newspaper industry has always derived most of its revenues from advertising. And last year was the worst-ever for all US papers, as total advertising revenues dropped almost 17%.

This year's little better. Last month, the Daily Mail said third-quarter national advertising revenues fell 12%, with the regional equivalent plunging 33%. Yet the high-cost printed newspaper delivery system has remained, says Knight. Printed ad revenue simply doesn't support the cost of providing the paper, the ink and, above all, the journalists.

Which newspapers will be charging?

Murdoch's first paper to start charging for online access, maybe by November, will be The Sunday Times. Content will be split off from the main paper to a new website. Other News Corp titles, including The News of the World and The Sun, will charge for web access within a year. "I believe that if we're successful, we'll be followed by other media," he says.

"If monetising news websites is a war, it looks like the big publishers are about to send in the ground troops," says Patrick Smith on Paidcontent.co.uk. "Now the FT is experimenting with iTunes-style micro-payments [ie, a pay-per-piece] model, and just about every other paper is looking at ways to get readers to pay for online news."

It's "no coincidence that newspapers, many of which have seen a third of their income wiped out, are again contemplating raising the 'paywall'", says The Guardian's Robert Andrew. "Not because they want to – it would instantly diminish their editorial influence – but because they have to. Reader payments may be the only sure-fire cash generator left at the moment."

How much money could charging for online content raise?

"In theory, online subscription should offer a torrent of cash, provided newspapers can bear the apparent shame of plummeting hits," says The Guardian's Simon Jenkins. The New York Times paywall generated $10m a year while it lasted. Even if reader numbers fall by 90%, he says, 250,000 devotees at, say, £100 a year could mean life or death for a publication.

That's why "consultants on both sides of the Atlantic are now working round the clock on how best to design paywalls, portals, 'freemiums', micro-charges and pay-per-reads. Lawyers are meanwhile fighting the oldest game in publishing: how to guard copyrights (at least for 24 hours). If Dickens and Kipling could crack it, I am sure they can."

Is paid content the only solution?

As Chris Ahearn at Thomson Reuters notes, "the internet isn't killing the news business any more than TV killed radio, or radio killed the newspaper. News business leaders haven't been keeping up."

The long-term solution must be "learning the lesson of the most tightly competitive medium of all: popular music", says Jenkins. Music online is all but free, but live stuff costs a fortune, and young people will pay more for a gig in a club than for a Led Zeppelin CD.

Meanwhile, "local newspapers are quietly dying when they should be staging everything from commercial fairs to sporting events and arts and book festivals. There is money in all of them. Newspapers should not be investing in fancy printing presses but in live enterprise, with the printed word as a mere core activity."

Has Murdoch got it right?

"At present, loyal print buyers appear to be subsidising a growing army of online freeloaders", says Press Gazette editor Dominic Ponsford. "By charging for online, Murdoch could prove to be the saviour of British journalism".

But his view isn't widely held. Trinity Mirror chief executive Sly Bailey points out that "a paid online model already exists for unique, high-value and well-differentiated content". So she "very much doubts" publishers will be able to charge for general news content when it's given away free by the likes of the BBC and ITV.

And as The Telegraph's Shane Richmond says: "This is a great opportunity for the Mirror, the Daily Star and producers of pictures of topless women to hoover up those Sun readers who aren't sure whether they want to pay. Murdoch's made the wrong choice this time."

Published in Economics | More articles by David Stevenson

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