Poynter Online - Romenesko

Memo by Steve Brill

SB/11/08 -- Confidential
Turning Around The Times -- And Journalism

Introductory Note: For a while I have been thinking about a way to take some of the contrarian thinking that made me try The American Lawyer and Court TV way-back-when and apply it to a new business model to save the New York Times and journalism itself.

There are two reasons why, beyond my love for the profession:

First, about eight years ago my wife and I endowed The Yale Journalism Initiative. The program is intended to get better people to go into journalism, train them, give them a leg-up credential without establishing a "journalism" major, and then find them careers. It now features seminars, workshops, supported internships, and even a full time career counselor. I also teach one of the seminars. (Plus Floyd Abrams, Adam Liptak and I now also teach at Yale Law.) The implicit and now-traditional part of the deal is that if you do all this and become a Yale Journalism Scholar, I will also get you a job � which I do, placing them with alumni of The American Lawyer, Court TV and Brills Content (plus Yale alumni) all over the country and world.

The problem is that now I fear I am guiding them off a plank. As one parent put it to me last fall, "why are you luring my daughter into something that will never pay her loans when she could go to work for McKinsey?" I have been trying to construct an answer for her.

Second, in the last two years I have gained a different perspective on journalism and the Internet � as the CEO of a company that spends lots on advertising. So I have seen first-hand from the other side that the idea that quality journalism can be financed by its website advertising is a mirage.

Preambles:

� A Business Model That Now Must be Flipped:
A business model that is based uniquely on expensive editorial quality but that derives revenue only from advertisers who only indirectly use or pay for that quality is a business model that cannot work. There is simply no example, not one � in print, on line, in television � of quality content offered for free ever resulting in a viable business. The Times has made great strides in developing beyond a simple print business, yet it is currently wasting all of that by sticking to that free model.

� The Limits of On-Line Advertising For a Newspaper:
Selling only the quality of the audience to advertisers cannot work for a general newspaper on line; for no matter how eagerly it seeks to deliver specialized content for vertical audiences, its search engine competitors for that advertising can always out-perform them when it comes to targeting and cost-per-acquisition. This is something I have learned as someone who now heavily buys advertising. For example, cost-per-acquisition for CLEAR on the Times' business travel section web pages is 10-20 times the cost-per-acquisition on search sites, on sites like Expedia, and on other relatively obscure non-search sites that are still more targeted. The current decline in online newspaper and magazine advertising is not just about the bad economy. It's also about the emerging reality that online advertising is just too accountable to allow quality general interest websites to depend solely on ad revenue.

� Training Customers The Wrong Way:
Continuing to train the next generation of readers to expect editorial quality to come for free when delivered the way most of them actually prefer it delivered (online) is a long term plan for failure if your core business is editorial quality. My mother-in-law is used to paying for the Times; my three children, who read it as avidly but prefer to read it online, are now used to getting it for free. No actuary would endorse that model.

� The Times Is Not Fungible and Shouldn't Act Like It Is:
Free content ultimately sends the message that the content is fungible; if it is fungible, then the Times has no business paying as much as it does for its content other than to be an eleemosynary institution trying to stave off extinction as long as possible. The Times needs to act on the correct belief that its content is not fungible. (Side note: More than half of the students in my Yale journalism seminar volunteered recently that they thought the Times was a non-profit institution!)

� From Threat to Profit: Flipping The Web's Lethal Dynamics:
The New York Times is a daily miracle of fresh, smart, crucially important content. And it is worth saving not only because it is so important but because saving it can become a model for saving other quality journalism. Across the country and the world, journalism � the way that democracies and free markets get the information they need through honest surrogates � is quickly dying, because the business model to pay for it is evaporating. There is, in fact, a way to save it by using common sense and the basic laws of business, and by redirecting the same electronic commerce dynamics that now threaten it. Indeed, now that the Times has done so much so well to build its online offerings it's time to turn the dynamics around � by getting paid for that content, while using the Internet to eliminate the huge costs of producing and delivering it. The Internet should be a publisher's dream, not nightmare.

Facts:
The New York Times newspaper website currently has 20 million unique visitors a month. It is a great editorial product and has done an amazing job building an audience. Now, it�s time to go to Step Two and make that work to usher in a bright new age for the world's greatest newspaper.

� Getting an average of just $1.00 a month (3.3 cents a day) from each visitor would yield $240m in new annual revenue. This is approximately equal to (it seems, from the Times' financial statements) two thirds to three fourths of all of the company's annual advertising revenue for all of its internet properties combined. And, of course, this online ad revenue would not disappear or even necessarily diminish if readers paid a small amount for online content.

� At an average of $2.00 a month per unique viewer, the resulting nearly half billion dollars in added revenue would equal 50% of the entire company's circulation revenue and create profits unseen for years at the Times.

� An average of $3.00 a month in five years with 30 million visitors ($1.08 billion in additional revenue for what is currently a $3b total revenue company with year-to-year declines) would completely reverse the fortunes and invigorate the margins of the paper.

� Any such online revenue plan would also stem the inevitable tide of declining print circulation revenue (my son and daughters are the Times' future readers, not my mother-in-law). To be sure, circulation revenue has increased a bit lately, but only because of price increases, not increases in circulation; and the cost of delivering those hard copies has increased even more. No one believes expanding print circulation is a viable mid-term or long-term strategy, especially when the target audience is increasingly people who would rather read the paper on-line, let alone rather read it on-line for free.
� Beyond being a gamble worth taking because of the potentially significant payoff, there is no realistic alternative to charging for quality content that anyone has presented. Online advertising revenue (competing against millions of other online ad outlets, including those that are far more efficient) cannot alone replace the two revenue sources of the old business mode -- one of which (classified advertising) the Times is now losing forever, while the other (circulation revenue) is being abandoned as fast as my children replace my mother-in-law as readers.

The trick is to have the fortitude to get off the free-content treadmill. Here is a plan for doing so:

The Plan:
� To help preserve the Times' search results, the headline and first paragraph of each article will appear online (and on mobile and other electronic devices) for free. (Google, which might be a joint venture participant, might even make this well-ordered, neatly-arranged news index its home news page.)

� All online articles will cost 10 cents each to read in full, with simple, one-step purchases powered by an I-Tunes-like Journalism infrastructure. (Apple, which turned my children from music pirates to music micro-buyers, could become a joint-venture participant, but that is hardly the only way to create a convenient payment engine.)

� A customer will be able to buy a pass to read all articles in one day for 40 cents.

� A customer could read all articles in one month for $7.50.

� A customer could read all articles in one year for $55.00. (Ad tag-line: "An Old-fashioned Tradition is Back: Read the Times for 15 Cents a Day.")

� For the first year, print subscribers would get the online version for free (which might enable an increase in the print price). After the first year they might pay 50% of the online price. (Many print readers also read the online version for convenience or to pass around a story to someone else.)

� There would be a five cent charge to forward an article to someone else. Paying customers would get a license to do that when they sign up to pay and set up an I-Tunes-like account, where those nickel pass-alongs would be charged. As a courtesy to such subscribers the first one or two pass-alongs a day might be free. If the customer sends it to an email address of someone who already has a subscription (for the week, month or year in question) that fee would not be charged. This would either produce revenue from the widespread current "copying" of copyrighted material or encourage people to get their friends to become paying customers. In other words, these pass-alongs would become viral marketing that produces sales.

� Turning Today's Parasites Into Tomorrow's Sales Force: To encourage websites (Huffington Post, etc.), which subsist on original reporting from sources like the Times, to link to the Times articles and to give them a stake in the success of the paid model, all websites from which a paying customer originates will receive 5% of any initial customer payment: If the reader buys one article for ten cents, the site gets 5% of that; if the reader buys a daily, monthly or annual pass, the site gets 5% of that. The same referral fee would apply to readers who pass along an article to someone who then decides to buy it or subscribe for a day, a month, or a year. Thus, the Times would turn its current parasites into a sales force (and also strengthen their own ultimately questionable business models).

To encourage a sense of "membership" in a community committed to an informed society and participation in the world's prime journalism organization, all annual subscribers would be given the chance to vote to approve the appointment of the ombudsman (whose role would be made much more independent for the same reason).

� These subscribers might even be issued a share of stock in the first year. (It�s time to think differently, and this could be the best $10-$20m non-cash marketing and promotional expenditure imaginable.)

� A new marketing campaign would promote the fact that the Times alone among daily newspapers (until the others follow) is charging for its content because "you get what you pay for."

� All of the Times� extraordinary new online offerings would not be wasted � far from it. These, too, would become part of the paid subscription offering or sold in the same micro-payment scheme. Again, the quality of the Times' content would once again be the driver of its business.

� This is the bullet point meant to caution readers that at first blush all of this may seem unrealistic. For example, many websites will initially not refer to, let alone help make sales to, a paid site on the "principle" that "content deserves to be free." (Maybe, but journalists' children deserve to be fed.) Again, significant efforts and investment to promote the great stuff the Times is publishing every day will be necessary. But that's a big plus � because it means that once again, the Times' editorial product will be its business plan, and vice versa. Making these changes, therefore, will require a thick skin, nerve, and probably two or three quarters of investment. Moreover, these changes cannot be made with the simple flip of a switch on some magical D-Day; they will require transition periods, testing, and patience. But they will also require determination, steeled by the realization that there is no alternative and that what the Times has done thus far to build a great online journalism product was not a mistake but a prelude to this logical next step.

� Advertising will be vigorously sold but feature much more deliberate targeting. Much of it would still be an up-sell from the print edition, only now the sales staff would be selling "paid" circulation for both venues. The Times online would now be competing the way paid circulation publications have always competed against the multitude of free handouts.

� In two or three years, as an experiment, the paper might not be printed on the lowest-profit print day.

� The same model might be initiated for Boston Globe and other Times Company newspapers; indeed, there is a possibility that the more local papers, with less content competition, will be able to make the transition just as effectively. But the place to start (and lead) is at the Times � the newspaper with the best brand for quality content.

� A merger with CNN.com should also be explored as a way of completing the ultimate online paid package. (Cable networks, which depend on payments from cable systems and their customers, will soon need to face the consequences of giving their content away for free, too.)

Romenesko

Latest Poynter Blogs (See All Blogs)