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A New Horizon for the News

The American news business today finds itself trapped in a grim paradox. Financially, its prospects have never seemed bleaker. By some measures, the first quarter of 2009 was the worst ever for newspapers, with sales plunging $2.6 billion. Last year, circulation dropped on average by 4.6 percent on weekdays and 4.8 percent on Sundays. Earlier this year, Detroit’s two daily papers reduced home delivery to three days a week, the Seattle Post-Intelligencer ended its print edition, and the Rocky Mountain News shut down altogether. This summer, The Boston Globe, which is losing more than $50 million a year, survived only by giving in to the draconian cutbacks demanded by its owner, the New York Times Company, while the Times itself, weighed down by the Globe, had to take out a $250 million loan from Carlos Slim Helú, Mexico’s richest man, at a junk-bond-level interest rate of 14 percent a year.

Yet amid all this gloom, statistics from the Internet suggest that interest in news has rarely been greater. According to one survey, Internet users in 2008 spent fifty-three minutes a week reading newspapers online, up from forty-one minutes in 2007. And the traffic at the top fifty news Web sites increased by 27 percent. While this growth cut across all age groups, the Pew Project for Excellence in Journalism found, “it was fueled in particular by young people.” The MTV generation, known for its indifference to news, has given way to the Obama generation, which craves it, and for an industry long reconciled to the idea of its customers dying off, the reengagement of America’s young offers a rare ray of hope.

How could the financial fortunes of a $50 billion–plus industry decline so swiftly while its product remains so prized? The most immediate explanation is the collapse of what has long been the industry’s economic base: advertising. The traditional three staples of newspaper advertising—automotive, employment, and real estate—have all drastically declined, thanks to Craigslist, eBay, the travails of Detroit, and the consolidation of department stores (resulting in fewer retail ad pages). Meanwhile, the steady expansion of space on the Internet has caused online ad rates to crash, and these are not expected to recover even when the economy as a whole does.

The fall-off in ad revenues has been compounded by another phenomenon that newspaper executives would rather not discuss: their own greed. The relentless stress placed on acquisition and consolidation, which dominated the industry for decades, helped drain money out of newsrooms and into the pockets of shareholders. It also shifted the locus of decision-making from locally based citizens to distant corporate boards. Most harmful of all, efforts to build large media conglomerates have saddled newspaper companies with astounding levels of debt, much of it taken on to buy other newspaper companies. The Tribune Company has been in bankruptcy court since October, wrestling with the fallout from Sam Zell’s highly leveraged purchase of Times Mirror, while McClatchy Newspapers, having paid top dollar for the Knight Ridder chain, has been selling off papers to keep its creditors at bay.

When it comes to mismanagement, then, the newspaper business seems in a class with Detroit. Unlike GM, though, newspapers offer a product that consumers still value. But how to cash in on it? As the old business models fade, new ones are urgently being tested. Surveying the blackened landscape, I searched for new buds—and stumbled upon something much larger.

1.

In April, The Christian Science Monitor became the first nationally circulated newspaper to end its daily print edition and concentrate on the Web. Having lost nearly $20 million in 2008, the paper wanted to shed the onerous costs associated with printing and delivery. (It still prints a weekly edition.) Some observers saw this as a harbinger for the industry, the start of a mass migration from print to digital. A look at the numbers, however, suggests otherwise. For all the growth in visitor traffic to newspaper Web sites, most online readers don’t linger there. According to one study, of all the time readers spend with a newspaper, 96 percent of it is spent on print editions and barely more than 3 percent on the Web. Similarly, of the $38.5 billion spent on newspaper ads in 2008, just $3 billion was spent on the Web. With numbers like these, print is not going away anytime soon.

For publishers, the key is to find a way to maximize revenues from print and the Web. And here a great sea change is occurring. Since the late 1990s, when the first news sites were introduced on the Internet, most papers have offered untrammeled access to them. “Information wants to be free,” the digirati proclaimed, and publishers dutifully went along. And for a while, that strategy paid off: as traffic grew, ad revenues did, too. With the steady fall-off of advertising since 2006, however, the free-for-all philosophy has lost its appeal.

Adding to the disillusionment is the growing recognition of the part that free access to the Web has played in the hemorrhaging of circulation. “When we look at why people quit buying the newspaper, it’s overwhelmingly because ‘I can get it for free online,’” William Dean Singleton, the CEO of MediaNews Group, the nation’s fourth-largest newspaper company, recently said. Whenever the Times’s Bill Keller and other top editors speak in public, they invariably encounter readers who, expressing amazement at being able to read the paper online for free, plead for ways to donate to it. In 2002, The Arkansas Democrat-Gazette started charging for online content. While it has signed up only 3,400 subscribers, the circulation of its daily print edition has held steady at around 180,000 at a time when that of most other papers has fallen, and its owner, Walter Hussman Jr., has traveled around the country describing how charging for Web content can help stop the bleeding.

Publishers are taking heed. In the next year, many are expected to erect “pay walls”—i.e., charges for access—around their sites. The challenge is getting the height right. Receiving the most attention are “hybrid” models that, part pay and part free, seek to gain subscribers while maintaining a steady flow of online readers.

There are two main models. The Financial Times uses a “meter,” or quota, approach. Visitors to FT.com are allowed access to a few free articles a month; to get more, they have to subscribe. This has netted the FT 117,000 subscribers paying up to $299 a year. Affluent and educated, those readers are very attractive to advertisers and so generate considerable ad revenue as well.

The Wall Street Journal’ s policy is much less restrictive. Visitors to WSJ .com are allowed free access to all articles about politics, culture, and other general-interest topics. Only those seeking entry to the Journal‘s business and finance reports must pay. Soon after Rupert Murdoch bought the Journal, in 2007, he announced that, to draw traffic to its Web site, he was going to make access to it completely free, but, seeing the softness of the ad market, he quickly reconsidered, and reports on business and finance have remained behind a pay wall. Today, WSJ.com has 1.1 million subscribers paying $100 to $140 a year. And with the number of unique visitors to the site surpassing 12 million in April, traffic remains brisk. As Murdoch recently acknowledged, the Journal‘s digital revenues “are not a gold mine,” but, he added, “People reading news for free on the Web, that’s got to change.” In recent weeks, executives at Murdoch’s News Corp. have been meeting with other publishers about forming a consortium to charge for news delivered online.

Such moves rankle advocates of free access to the Internet. Among the most vocal is Arianna Huffington, the cofounder and editor in chief of the popular Internet news-and-blog site The Huffington Post. “Walled gardens,” she insists, don’t work; the “link economy” is here to stay. (Free links, it must be noted, are vital to The Huffington Post’s health.) As evidence that pay walls don’t work, Huffington and others point to TimesSelect. Introduced by The New York Times in September 2005, it placed the paper’s columnists behind a pay wall and charged online readers $49.95 a year for admission. Two years later, the Times, concerned by the fall-off in traffic, reinstated its free-for-all policy.

Even that limited test, however, attracted 220,000-plus paying subscribers. If the Times were to place even more, or different, content behind a pay wall and find the right entrance fee, it would no doubt gain many more. For months, the paper’s executives have been studying various pay options, and they plan to offer one or more in the fall.

A lot will be riding on what they decide. Aside from being the nation’s top newspaper, the Times has devoted far more money and manpower to its digital edition than any other paper. At its Midtown office, teams of cybergeeks, futurists, and “creative technologists” have worked feverishly to combine traditional journalistic practices with the protean powers of the Web. Their imprint is apparent in the welter of videos, multiband graphs, sumptuous pie charts, slide shows, and time lines at NYTimes .com. Now, in addition to reading Nicholas Kristof’s descriptions of malnutrition in Africa, you can watch a video of him interviewing some of the victims. On an interactive photo feature titled “Casualties of War,” a click on a montage of photos of soldiers killed in Iraq and Afghanistan summons up mini-profiles of each. A “word train” offers a snapshot of what’s on reader’s minds by displaying in varying type sizes the adjectives they send in based on the frequency of their mention.

There are blogs galore—Andrew Revkin on the environment, Paul Krugman on the economy, Errol Morris on whatever’s on his mind—plus leisurely features like “One in 8 Million,” an audio slide show about ordinary New Yorkers (linked to a regular feature in the print edition), and “The Puppy Diaries,” managing editor Jill Abramson’s weekly musings on her new pet.

For an institution long known as the “Gray Lady,” it’s a dazzling mix. But is it on the right track? Lionel Barber, the editor of the Financial Times, told me:

The prerequisite for establishing a pay-for-content model is good content—must-read content. It’s extremely important in the modern news business to be clear on what your comparative advantage is. If you want to be everything to everybody and spread your resources too thin, you’re going to get into trouble.

The FT‘s comparative advantage, he added, “is business and financial.” The New York Times‘s advantage, he argues, is its “global network” and its “deep and original reporting.” While some observers maintain that the FT and The Wall Street Journal are uniquely able to charge for content because the information they offer is so valuable to businessmen, Barber believes that a high-quality general-interest paper like The New York Times can charge as well.

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