Tuesday, May 8, 2007

Why buy the cow when you can get the milk for free?

Decades ago, I worked for a tiny suburban daily newspaper — one of the smallest in California. Most of our readers got their news from TV, so our paper gave them the local comings and goings that the big city stations couldn’t fit into their 22 minute (or 44 minute) broadcasts. I bailed out in 1983, despairing of ever making enough money to pay for my car insurance and telephone bill, let alone support a wife. Not having taken macroeconomics, I didn’t realize we were in the middle of a recession, that classified ads were at the bottom of their cyclical ebb and flow, and that (as it turns out) if I waited six months I could have won a 50% pay increase when the San Diego Union started hiring from local papers.

[The Front Page]But over the long term, my timing was impeccable — U.S. newspaper circulation peaked in 1984, and has been falling ever since. In the most recent audit report, daily circulation fell 2.1% from a year earlier (3.1% on Sunday), with some papers losing 5% or more and only a handful of papers showing any gains. Of course, their onetime classified ad cash cow has been supplanted by craigslist and eBay.

On Monday, Walter Hussman, the publisher of Arkansas’ largest newspaper said that newspapers have no one but themselves to blame, by helping to commoditize the industry over the past decade:

One has to wonder how many of the newspaper industry's current problems are self-inflicted. Take 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 what was in the newspaper they had to buy one. But not anymore. Now you can just go to the newspaper's Web site and get that same information for free.

The newspaper industry wonders why it is losing young readers. Those readers might be young, but many of them are smart, not to mention computer-savvy. Why would they buy a newspaper when they can get the same information online for free?
Some newspapers had tried to charge, such as the San Jose Mercury-News, Silicon Valley’s newspaper of record. It sold subscription content on AOL in 1993 and on the web in 1995, but abandoned subscription fees in 1998 in hopes of gaining more advertising revenues. Of course, one factor was that tech news was available free from CNET and ZDNet. Slate magazine tried to charge, too, but lasted only a year.

Beyond his intuition, Hussman was able to conduct a quasi-experiment, by comparing the circulation figures for the Arkansas Democrat-Gazette (which still charges for content) with the comparable Columbus Dispatch (which stopped charging). For the weekday paper, the latter lost 5% more subscribers than the former.

Hussman points out that the newspaper industry spends $7 billion a year on gathering news. He’s right that the industry needs to recoup that somewhere, and commoditizing its product is not in its best interest. But he doesn’t say how the industry can compete with the free alternatives, although he does hint that the owners of the Associated Press (i.e., 1500 U.S. newspapers) should force AP to renegotiate the sweetheart terms it’s given to portals such as Yahoo, MSN, etc. (Last year, AP did get Google to finally pay forsome content).

Ironically, reading Hussman’s column would normally require paying a fee, because it appeared in the Wall Street Journal, one of the few newspapers to consistently charge for content. However, the Journal offers some of its editorial page articles free on OpinionJournal.com to increase its political influence.

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