January 15, 2016

A stumbling newspaper industry has been clueless on paywalls and in how to produce content people will actually spend money to read, says Steve Brill.

But why should one be surprised, he contends, given the frequent make-up of its executive class? To him, it’s often been a bunch of rich kids who inherited a paper from mom and dad and continued a tradition of local monopolies. They never had to really compete, aren’t big thinkers and were “paralyzed” when real change hit the industry.

That may be undiplomatic. But it’s not idle peanut-gallery punditry by Brill, the journalist-entrepreneur-author who revolutionized legal affairs reporting in the 1980s, created a successful cable TV network, discovered an All-Star team of journalists and written best-selling books on the Teamsters Union, American education and the messed-up health care system.

After all, for several recent years he and partner Gordon Crovitz, the former publisher of The Wall Street Journal, went around the land trying to convince newspapers to set up paywalls.

In 2009 they started Press Plus, a company aimed at assisting news operations in establishing them. They later sold the company to Chicago-based R.R. Donnelley & Sons, which last year sold it to Piano Media, a Slovakian company also in the paywall business.

Over time they had hundreds of newspapers as clients, even though there could at times be less than met the eye. Yes, the papers would cut deals with Brill and Crovitz. But many were reflexively nervous about scaring away advertisers and inclined to set too high the bar for how many articles readers could get for free each month before the paper would hit them up for money.

In some cases, he says, one could imagine only “a reporter’s mother” reading that many stories a month in the paper.

The man who founded the American Lawyer legal empire of publications and the cable Court TV, among other ventures, has always kept his hand in old-fashioned, high-quality investigative reporting. That includes two long cover stories for Time magazine on the health care system and, recently, a head-turning 15-part series for Huffington Post on “America’s Most Admired Law Breaker.” A brilliantly-presented and annotated effort focused on how Johnson & Johnson illegally marketed a drug for schizophrenia to children and the elderly for many years and made billions of dollars. (A longtime friend of Brill, I helped with some initial editing)

And, along the way, both as businessman and reporter, Brill has confronted a critical question for the entire media business: How does one get consumers to pay for quality journalism? Is it possible? He expanded in a lengthy Poynter interview.

You were involved intimately in the whole matter of paid content and helping newspapers with paywalls. What were the lessons of that experience?

Brill: Our goal was obvious and grew out of my frustration, indirectly, with the students to whom I teach [journalism] at Yale. I usually succeeded in helping them get jobs. In 2010, I was concerned that I was luring them into a dead end profession, or they wouldn’t be able to pay off students loans and pay their rent as successful, self-sustaining journalists.

Every newspaper at the time except The Wall Street Journal and the FT [Financial Times] was giving everything away for free. I always had a basic view in running any journalism organization, particularly my legal publications, that if you weren’t getting revenue from readers, you ultimately weren’t going to put a premium on your journalism. You couldn’t just rely on advertisers because they would then be your only real customers.

Gordon, as publisher of The Wall Street Journal, had been thinking of the same thing and had implemented that principle there. We thought we could get reader revenue online without sacrificing ad revenue by using a meter. It took us eight or nine months to get the first two or three newspapers. The first ones were a paper in York, Pennsylvania and some smaller Media News publications, primarily because I had a relationship with Dean Singleton and he was of the view they should get money from content. It was slow going, although our technology worked well.

The logjam was broken when The New York Times launched its own meter. Then, suddenly, newspaper publishers decided this must be a good idea.

That taught me two things about the industry. One, they were not exactly swashbucklers. Many of the people we saw, especially at mid-sized and smaller papers, were third and fourth generation owners who had inherited a monopoly from parents and were milking the monopoly and were paralyzed and didn’t want to do anything even as the numbers around them declined. “What if our readers get offended if we charge for online?” they would say. “What if we lose our advertisers?” We said you can set the meter so you don’t lose them. Set the meter at five or ten articles [for free] a month. They kept saying, ” What if, what if…?” Then we asked them for their alternative business plan. They were losing print circulation and advertising and giving everything away. They didn’t have a plan. They had inherited monopolies and were paralyzed.

The Times decision changed them and showed me that inertia can become a herd mentality for the same reason. People who are afraid of doing something on their own become a herd once they see others do it, and they will do it, even if they don’t really believe in it. That ballooned us to 600 or 700 papers in a year or two.

But the ongoing problem is that most didn’t get the other half of the message: If you are going to sell content online, you need something to sell. You have to invest and lose money in the short term by beefing up the quality of what you were doing.

We would tell people that, yes, The New York Times is reporting these results but they have hundreds and thousands of articles of high quality they were offering online. People aren’t stupid. They won’t buy stuff they can get anywhere else. They will only buy stuff they can’t get for free elsewhere.

We had a meeting at one big paper — I think it was the Atlanta Journal Constitution. They were psyched to do this, but one editor walked us out of the building and said, “It’s a good idea but I’m not sure we still have anything left to sell.” The New York Times stands as the model of what happens if you not only maintain but enhance your product online. It’s a better product online than in print not because its print product has declined qualitatively but because its digital product has used new, better tools. It is constantly updated. It uses video and great graphics. It gives people the ability to click to supporting documents, graphs and other data. It has not abandoned print but enhanced the quality of its offering. That is why it is succeeding.

Ok, that’s The Times. But what has played out in the more prototypical situation you encountered?

Brill: There was a paper in Montana that had a take-up rate for paid online subscribers that on a percentage basis, considering the size of the two markets, was a lot higher than the Denver Post. Why? They were covering the local school board, local politics, local sports — and people wanted to buy it. The Denver Post was almost comical. The company [that owns it] is now called Digital First when in fact it should probably be called Digital Last. They had a CEO, John Paton, who fancies himself an evangelist, not a down in the weeds manager, so he let publishers do what they wanted to do after they got Press Plus. They started the meter at 100 [free articles per month]! There was perhaps nobody other than the mother of a reporter who read 100 stories a month online. So we got them to lower it to something like ten. But they then decided to exclude from the meter their coverage of the Broncos and their wildly popular marijuana column. So it was basically, “Let’s sell the stuff we don’t think is as good and give away for free our best stuff.” It’s hard to be dumber than that.

So what happened at most places?

Brill: The prototypical meter is set at five or ten and getting maybe 8 or 9 dollars a month per subscription. This was not a silver or gold bullet, but a bronze bullet. You got a small or medium uptick in revenue. It was several million dollars at larger papers. But it changed the equation.

The whole mind set previously was pageviews, how many clicks you got. But if you’re trying to sell something to loyal readers, then have something that is clickbait that gets linked from Drudge, that does you no good since that person won’t come back often. But consistently good coverage of the high school football team or planning board will get people to hit the meter and decide to buy.

And if they’re print subscribers, you give it to them for free but make them even more loyal print subscribers. If you decide, as many newspapers will, to print three times a week or once a week, you will have converted people to use a digital subscription in addition, so they will get a 24/7 newspaper. You cut print and distribution costs and are back to having fairly decent profit margins. That’s the only way out for papers.

But you can’t get there by just saying the journalists are a cost center whose stuff runs around the edges of our ads. They are the people getting us our revenue.

So what happens?

Brill: Some smart venture capitalist is going to bottom feed a large company and bring in people who do it right. That means beefing up the website, making it the place for information and news in a community and getting people to log in so often, you will be able to get by with only printing, say, once a week, maybe on Sunday. And online will be a seven-day-a-week product that everybody will be happy with and will be self-sustaining. That is what I think will happen to Tribune or Media News or somebody. Private equity will buy them for a song, then invest in journalism as they cut back on the number of days they print.

What about the process of actually convincing publishers and editors, and what did you learn, in an anthropological sense, about the industry?

Brill: Our work involved constant hand holding with publishers and people in newsrooms to get them to support investing in the newsroom. This is not a group of business people who are real business people. They either inherited monopolies or were, by then, part of big chains in the hands of debt holders. The industry wasn’t full of high quality, big thinkers, in terms of the people running it, since for many years it didn’t have to be. For years, if you had a paper, for many advertisers, you were the only game in town. If the Oldsmobile dealer wanted to announce a sale, you got the ad. Now there isn’t even an Oldsmobile dealer, and the car dealers who are left have multiple ways to market their cars and infinitely more efficient ways to market used cars. The underpinning of the business was eviscerated and in many places the people who inherited the businesses weren’t prepared, since they never had to really compete.

Be more specific.

Brill: Gordon and I would get on a plane. Maybe we’d go to Augusta (Georgia) or Denver or Seattle. The scene was pretty much the same everywhere. They had one of the most prominent buildings in town. There was a statue or a plaque commemorating the founder outside. The First Amendment would be carved in stone. Inside the building there would be a second or third or fourth generation person in charge who was pretty clueless. And, yet, as we know from watching the movie “Spotlight,” they are sitting on an enterprise that’s hugely important to that community. And now look: they are selling the building. Look at the Tribune building in Chicago; a building built around one of the two or three most important enterprises in Chicago. They were a pillar of the community. Now it might become condos.

So what about the “hot” new media firms, such as BuzzFeed, Vice, Huffington Post, among others?

Brill: When I started businesses, like American Lawyer magazine, I was worried about revenue from day one. The Huffington Post, as best I can tell, hasn’t made any money. I assume if I started a newspaper tomorrow and picked a great corner in Manhattan, I could hand out thousands of copies for free. Not sure why people would say I was successful. The only revenue source for these businesses is ad revenue.

The one thing you can say about ad revenue online is that the primary problem is that there is an ever increasing supply of the product. The number of pageviews available to advertisers increases exponentially, meaning the price per click keeps going down. So what are they doing? Some places are innovating with video ads, and that was a big fad. But as a result, the amount of video advertising is increasing exponentially, too, so that supply keeps rising and the price keeps falling.

Then there’s native advertising. Nothing new about it. I had ads in American Lawyer — ads about how to manage law firms in the form of two or four page spreads written by consulting firms. The consulting firms would always try to get me to reduce the size and change the font of the notice at the top declaring that it was “ADVERTISING.” Their goal was to deceive the reader into thinking it was editorial content. But my readers were paying hundreds of dollars a year for a monthly subscription. You don’t want to deceive those kinds of customers, so the font and size of the disclaimer never changed.

But if everything on your site is free, you may worry less about screwing over your readers. Then again, readers will ultimately be offended, which will hurt your brand. So I think native advertising has a limited future as a silver bullet.

As a general matter, some of those places, like Vice or Vox or Huffington, will succeed if they continue to attract loyal viewers and readers. But they won’t all succeed. The amount of the valuations being paid for them is breathtaking, given their collective lack of cash flow.

Is there a model?

Brill: For my money, look at the most successful online content business. It’s a nonprofit, Consumer Reports. What does it do? It says if you want to know what kind of toaster to buy, give us $3.95 or something like that online to get all the toaster ratings or $29 to get all the ratings all year. It is high quality editorial content people are willing to pay for. That doesn’t mean everybody has to use that model. But in the history of the world, if you are talking about quality journalism, where you have to pay people to do real reporting, and go travel to do interviews, in the history of the world, it would be hard to name the quality journalism organization that existed solely on advertising revenue. The closest is the broadcast networks in the ’60s, ’70s and ’80s when they had 90 percent of the eyeballs in the country. And even then their news operations mostly didn’t make money and were really considered a public service.

Meanwhile, people say CNN is down. But it is still making hundreds of millions of dollars. Why? Because viewers are paying for it through their cable fees. Thus there’s a dual revenue stream. It’s the same at MSNBC, which is highly profitable. And Fox is the most profitable cable channel. They might not all be the operations I would personally run. But, in the case of Fox News, they do something distinctive, pay good money to produce their product and then depend on people wanting to have the channel on their cable system, paying for it and watching

You’ve been involved in two major reporting projects for Time magazine in recent years and, a few months ago, a 15-part series for Huffington Post. What did you come away thinking may be the market for very longer, nuanced journalism that also includes links to virtually all a reporter’s reporting, even including whole court transcripts?

Brill: The lesson is people will read long form stuff if it has quality. On the business side, I was disappointed that Huffington didn’t try to make this [series] part of a new business plan. Everything on Highline [the longform Huffpo section where the series was published] doesn’t have any ads. It’s basically a charity venture. I wanted them to have people read two or three chapters for free and then have to pay two dollars to read the rest of them. Fewer people would read it but, thinking long term, if they had done that — and millions read more than one chapter — that would have been more of a business. After about a week of having my special issue on healthcare prices up for free, TIME put it behind their not terribly efficient paywall and got thousands of new paid subscriptions. That is how it ought to work. If you do something really well, there’s no shame in getting people to pay for it.

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New York City native, graduate of Collegiate School, Amherst College and Roosevelt University. Married to Cornelia Grumman, dad of Blair and Eliot. National columnist, U.S.…
James Warren

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