Fredrik Lindros, manager of strategic practice at consultancy Accenture, feels the industry needs reminding of one salient point. "The statistic people forget is that only 2% of adults get all their news online," he says.
"In fact, 38% of adults still get their news purely from print media – people like the completeness of a newspaper, which is why they keep papers and not web pages. All the same, media companies need to prepare for the future."
, this is still a bad recession for British and American newspapers. This month, said UK newspaper circulation has fallen 25% between 2007-09, second only to the US, where the decline was 30%.
Meanwhile, PricewaterhouseCoopers’ claimed the internet is poised to overtake newspapers as the second-largest ad medium behind television.
Finding experts with solutions isn’t tricky. What has proved harder has been finding media owners who are putting those solutions into effect. This month, the Times and the Sunday Times took the first step towards charging for online content by taking the newspapers’ sites behind a widely discussed paywall.
The sites are so far free to registered subscribers but, after June’s free trial, News International is expected to implement the charges of £1 per day and £2 per week within days.
The move is part of a sweeping strategy across News Corp, which has been making money from the Wall Street Journal’s paywalls since it bought the paper in 2007. – upping its stake from 39% stake – although Murdoch’s initial bid has been rebuffed by shareholders and a second offer is on the way.
At News Group’s results for the third quarter of 2009, Murdoch said the WSJ has already signed up 64,000 users for its iPad application. Intriguingly, he added that News Corp is preparing its own iTunes rival that will sell TV shows and movies such as the company’s big-screen hit Avatar – online.
Rethinking the newspaper business model
"The storm of publicity our move has generated has been extraordinary," says Daniel Finkelstein, executive editor at The Times. "Ironically, we have been accused of not understanding the future. In fact, the people who don’t understand the future are those who assume the way we use the internet will be the same in five or ten years’ time."
Finkelstein explains the paper’s strategy relies on consumers moving from laptops to smartphones and tablet computers as their main way of accessing the net. "Tablets and smartphones are far closer to newspapers than laptops in terms of the way people consume content," he argues.
"We see ourselves as a content provider that is no longer tied to any particular sort of distributor. But, as content providers, we think people are prepared to pay for what we supply."
Certainly, there is early evidence to support his theory. In May, Condé Nast in New York released an iPad-ready app version of its digital culture magazine Wired. According to Sarah Chubb, president of Condé Nast Digital, the publisher sold 24,000 copies of the app at US$5 per issue in the first day.
"Our GQ app has had about 250,000 sessions," she explains. "About 60% of those sessions were on the iPad, and the remaining 40% were on iPhones. Young guys who have never bought GQ are buying the iPad app."
Lindros from Accenture agrees with Finkelstein, although he argues the Times should have left a diminished form of the newspaper available free on the laptop/PC internet. (For his part, Finkelstein believes this would just confuse readers and discourage them from taking up subscriptions to the paid-for site).
The new revenue solutions
Under Accenture’s analysis, a tablet/paywall-centred approach allows newspapers to access three separate revenue streams.
Lindros says: "Business models for print should augment the traditional ad revenue stream with targeting and video technology, subscription revenue via apps on tablets and smartphones, and a new third stream – the embedded shop that interactive media allows," he explains.
"Newspapers in Norway are looking at revenue models that would allow readers to click on, say, pictures from the Oscars and buy dresses from H&M that look like red-carpet frocks."
In the UK, the Daily Telegraph – which is currently running an outdoor campaign proclaiming its free online content – has so far used retail revenue as its key source of online funds. Last year, the paper’s former editor-in-chief Will Lewis created The Euston Project to generate cash from online ventures such as wine and travel clubs while steering clear of paywalls.
Lewis departed in May this year in a move many thought would herald the end of his plan. Under executive director of consumer revenues Steve McLaughlin, however, the paper has announced that: "The successful development of products to be launched throughout the summer and autumn, including Fashion and Beauty, has shown the benefits of this strategy, which will now be adopted across the group."
Other UK newspapers have taken different approaches. The Guardian, says Tim Brooks, managing director of Guardian News & Media, remains determined to keep its online offering free. "We are owned by the Scott Trust, which has a mission to make its journalism available to as many people as possible," he explains. "The old model of newspapers saw ads and editorial bundled up together and that model no longer works.
"In the old days, people would buy a paper for sport even if they didn’t read the international news. But today they choose what they want to read. We are looking at lots of different revenue streams – from ad-funded content to relationships with our readers through Guardian Extra – but our principle remains."
Taking the middle ground
Rob Grimshaw, managing director of FT.com, is seeking a middle way – one that is close to Lindros from Accenture's pitch in terms of giving something away and keeping something back. FT.com, he explains, gives people who register on the site free access to 10 articles each month before a subscription barrier encourages payment.
"Either way it works for us," he explains. "If people sign up but don’t pay, we still have information about them that allows highly targeted advertising messages. In March 2009 we had 126,000 online subscribers against a paper circulation of about 400,000, and we are getting 25,000 to 30,000 people a week registering on the site." Grimshaw adds that FT.com is a profit centre for the newspaper as a whole.
Ivan Pollard, partner at Coca Cola and Sony’s agency Naked, is inclined to side with Brooks from the Guardian overall. "The old newspaper model is dead," he agrees. "I’d expect papers to charge for archive content but there’s so much free news and entertainment online that paywalls will just lose readers."
But Finkelstein is sanguine. "People tell me that of the 20 million online readers of the Times I’m only likely to keep 10%," he says. "That’s still four times the number of people who buy the paper."
Which newspapers are making money? The balance sheets so far...
Telegraph Media Group
In March, TMG announced a return to profit after losing £15.7m in 2008, posting a pre-tax profit of £53.1m for 2009 - despite falling ad revenue. Circulation revenue proved resilient thanks to "a strong and loyal subscriber base". The start of the year saw a strategic change for the company’s online business, swapping attracting the maximum number of web users for a focus on the "three Cs": content, commerce and clubs.
Financial Times
Financial Times owner Pearson reported headline pre-tax profits of £761m for 2009, up 13% year on year. However, stripping out businesses such as Penguin Books, adjusted operating profit at FT Publishing - the division that includes the Financial Times and a share in the Economist - fell 47% to £39m. Sales fell 8% to £358m over the period.
The company said it had "significantly shifted its business towards digital and subscription revenues" by selling newspapers in France and Germany so it could buy digital business with "international opportunities", including Mergermarket and Medley Global Advisors. Digital products and services accounted for £1.7bn in revenues - more than 30% of Pearson’s sales - and more than double the total five years ago.
Guardian News & Media
Guardian Media Group reported an increased pre-tax loss of £171m for the 12 months to the end of March 2010. Turnover at GMG’s wholly owned businesses fell from £310.9m in 2008/9 to £280m in 2009/10 - although the operating loss for Guardian News & Media, which owns the newspapers and the website, fell from £65.2m to £53.9m. The company said it had been an exceptionally hard year and losses included writedowns on investments in Emap and radio. Alan Rusbridger, the Guardian’s editor, says paywalls around newspaper websites could lead the industry to "sleepwalk into oblivion".
Associated Newspapers
Associated Newspapers’ revenues dropped 12% year on year in the last quarter of 2009 to £208m, in part due to the closure of London Lite in mid-November. On an underlying basis - which excludes London Lite and Associated’s minority stake in the London Evening Standard - Associated’s revenues for 2009 were down 6% year on year. However, there was brighter news in Associated’s results for Q1 2010, when the group reported that underlying ad revenues rose 8%.
News International
Pre-tax losses for Times Newspapers, publisher of the Times and the Sunday Times, widened to £87.7m for the year to 28 June 2009, rising from £50.2m in the previous 12 months (source: Companies House). The company blamed the losses on declining advertising revenues and said its directors expected the general level of activity to continue "for the foreseeable future". News International, which also includes the more profitable Sun and the News of the World, delivered a 10% increase in advertising revenue in Q1 2010, despite a 4% fall in circulation income.
However, the results for parent company News Corp in Q1 2010 showed quarterly profits of £554m, boosted considerably by record box-office takings of $2.7bn for Avatar, made by News Corp’s Hollywood film studio 20th Century Fox. Rupert Murdoch told analysts to look out for a digital publishing venture offering TV, video and entertainment on demand through a tie-up with technology companies, insisting that paid-for content is the way forward.
So will consumers part with their hard-earned money to access newspapers online? .