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! "!

Introduction

The development of new technologies and the different ways in which news

readers consume information is forcing the newspaper industry to rethink their traditional

business models. In a culture that champions minute-by-minute news updates, easy

accessibility of information and in-depth reporting, print newspapers are finding it

increasingly difficult to meet their consumers’ demands.

This case study will examine the costs and benefits involved with completely

moving print newspapers online. The Background will explain why United States

newspapers are currently discussing this alternative business model.

Background

The average newspaper circulation for 379 U.S. dailies dropped 10.6 percent,

from April to September of 2008 to April to September of 2009, the largest drop in the

past decade, according to an Audit Bureau of Circulations report released Oct. 26, 20091.

Furthermore, a Pew Research Center study shows a falloff in daily newspaper

readership from 1992, when it was 71 percent, to 2006, when it was 52 percent, to 2008,

when it was 46 percent2. And Figure 1, from the same study, shows the percentage of

readers who read a daily newspaper yesterday has declined from 2006 to 2008.

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! A!

Furthermore, as indicated by Figure 2, the same study reveals the audience for

online newspapers has increased since 2006.

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And as of May 2009, 149 newspapers have shut down or begun to focus on the

online medium3. After looking at these numbers, the solution seems simple: move

newspapers completely online. But, there is one more study to factor in. In a Nieman

Journalism Lab study, Martin Langeveld finds that only three percent of newspaper

readers read newspapers online4. Also, of the top 20 news Web sites ranked by Alexa, a

web information company, only three are traditional newspapers5.

Newspapers are realizing they can no longer depend on traditional revenue

sources, such as newsstand sales, subscription fees and advertising, so they are

experimenting with the online news medium. And as indicated by these statistics,

newspapers are realizing they must try to adapt to the world of online news.
! G!

But there are reasons why newspapers haven’t completely transitioned from print

to digital. This case study will discuss those reasons. There are several factors to consider

if newspapers were to stop publishing print editions and only publish stories online.

These factors include advertising, a working pay model, readership age demographics

and quality of news.

Factor One: Advertising

Print newspapers depend on advertisers as their number one revenue source, and

for years, advertisers have depended on newspapers to sell their content. But, the Internet

has made it easier for advertisers to take advantage of not only free advertising

opportunities, but also online advertising that may just reach a far wider audience than

print. According to the Newspaper Association of America’s (NAA) “Trends and

Numbers,” total journalism industry advertising fell 23 percent from 2006 to 20086. Is the

Internet to blame? In 2008, print ads fell 17.7 percent while online ads fell 2 percent7.

Should newspapers be increasing their online advertising efforts?

The NAA says Craigslist, the mostly-free classified ads website, took $7 billion of

advertising from newspapers each year8. This is significant because of the 23 percent loss

of advertising revenue, four-fifths accounts for classifieds9.

But some don’t believe that free Internet advertising is to blame for newspapers’

financial woes. Media consultant Robert G. Picard said although the Internet attracted

$23.4 billion in the U.S. in 2008, about half of that is from search and lead generation

fees, which cannot compete with traditional newspaper advertising, and therefore are not

hurting newspaper advertising10. He argues that print advertising’s real competitor is not

the Internet but direct mail and home delivery advertising, which has increased its
! H!

household reach in recent years11. He concludes his analysis of print versus online

advertising by saying, “The end for newspapers is not in sight and those who think that

the $50 billion industry is going to collapse and disappear within a year or two because of

Internet advertising are just not paying attention close enough attention to what is really

happening across media industries.12”

It is currently difficult to judge whether online advertising is threatening the

vitality of newspaper advertising revenues but, in the future, the correlation may become

stronger between the two.

eMarketer recently predicted that Internet advertising would overtake print

advertising in 201113. As seen in Figure 3, in 2007 newspapers received 18.7 percent of

U.S. advertising spending share, whereas the Internet received 9 percent14. The projection

says by 2011, newspapers will receive 13 percent and the Internet 13.4 percent, and in

2012 the Internet will be the more lucrative advertising medium15.

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! M!

In January 2009, Los Angeles Times Editor Russ Stanton said the newspaper’s

online advertising revenue could cover the Time’s print and online editorial payroll16.

The Guardian’s Jeff Jarvis said, “What this tells me is that we are on the cusp of a

moment when online revenue could sustain a substantial digital journalistic enterprise

without the onerous cost of printing and distribution17.”

But, Alan Mutter, famous newspaper veteran and web entrepreneur, criticizes

Stanton’s calculations and argues that newspapers cannot go to a digital-only publication

without radically changing the economics of the news industry. He said if the Los

Angeles Times were to stop publishing their print newspaper, 90 percent of its advertising

revenues and around $65 million of its cash flow would disappear18. Mutter goes on to

say that a web-only operation would not necessarily be more profitable than a web and

print operation. He estimates the Los Angeles Times’s annual earnings (before interest,

taxes, depreciation and amortization) to be about $72 million19. And he said this would

only cover the salaries of newsroom employees, not medical benefits, employer’s share

of payroll taxes, workers comp and other benefits20. Mutter estimates the “fully loaded

cost of the newsroom” is actually around $90 million21.

Though advertising is a major revenue generator, it is not the only option online

newspapers would have to make money. The option of charging users for online content,

just as newspapers charge for print content, holds a viable opportunity.

Factor Two: Charging for Online Content

Los Angeles Times Columnist Tim Rutten says the Wall Street Journal and the

Financial Times are the only two major newspapers that charge online fees while other
! E!

newspapers believe they can sustain their business models by solely relying on

advertising dollars22. Henry Luce, a TIME co-founder, said relying solely advertisers is

“morally abhorrent” because “good journalism required that a publication’s primary duty

be to its readers, not to its advertisers23.”

Isaacson writes that more Americans got their news online for free than paid for it

by buying newspapers and magazines, according to a Pew Center Research study.24

TIME’s Walter Isaacson writes, “Even an old print junkie like me has quit subscribing to

the New York Times, because if it doesn’t see fit to charge for its content, I’d feel like a

fool paying for it.25”

As previously mentioned, sources of revenue, like newsstand sales, subscriptions

and advertising, simply aren’t enough to sustain the print newspaper industry. And if

newspapers have always charged for print content, why wouldn’t they charge for online

content? Isaacson says in the early 1990s, companies like Delphi and AOL used to charge

users for the minutes they spent online and so it was in the companies’ interests to keep

users online for as long as possible – “as a result, good content was valued.26”

Isaacson said in 1976 Bill Gates made a savvy business decision. When he

noticed that computer programmers were freely sharing Altair BASIC, a computer code

created by Gates and his colleagues, he decided to start charging for the content. Gates

wrote to the programmers and said, “One thing you do is prevent good software from

being written. Who can afford to do professional work for nothing?27”

Newspaper journalists could be asking their readers the same question, but there

are reasons why newspapers are not charging for online content yet. In this case study,

the two reasons highlighted relate to antitrust laws and creating a working pay model.
! N!

A main concern with charging online content is that not all the major newspapers

would do it. For those who did charge, they would run the risk of losing their audience to

those newspapers who decide not to keep online content free. Therefore, for the online

pay model to become a viable solution, all newspapers would have to agree to start

charging for content. But, anti-trust laws disallow making this agreement.

Los Angeles Times Columnist Tim Rutten says newspapers need an antitrust

exemption – the same type of exemption that was given to Major League Baseball in

192228. The antitrust exemption “would allow all U.S. newspapers companies … as well

as popular broadcast-based sites such as CNN.com – to sit down and negotiate an

agreement on how to scale prices and, then, to begin imposing them simultaneously,”

Rutten says29.

If this discussion were to happen, then online news providers could begin working

on an online pay model that would charge consumers for news.

Isaacson suggests the key to attracting online revenue is to invent an “iTunes-easy

method of micropayment.30” He says, “We need something like digital coins or an E-

ZPass digital wallet – a one-click system with a really simple interface that will permit

impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel,

dime or whatever the creator chooses to charge.31” Under this micropayment plan,

Isaacson muses that a newspaper might charge 5 cents for an article or ten cents for a

daily edition or $2 for a month of Web access32.

Zuora is an online payment specialty startup that is being discussed by many

bloggers. Tien Tzuo, the founder of Zuora, recently demonstrated his company’s Z-

Commerce for Media at a DEMO emerging technology conference33. According to an

! F!

Agence France-Presse article, “Z-Commerce provides simple tools for news

organizations to customize price schemes based on their needs or preferences, with

options ranging from charging small amounts per story to offering monthly or annual

subscriptions.34”

If newspapers eventually decide advertising dollars are not enough to sustain their

business model, they will turn to charging for online content. And companies like Zuora

will be the first of many who will try to recreate the online business model for

newspapers.

Though the funding and payment aspect of moving print to online is important,

there are still other non-monetary considerations to keep in mind.

Factor Three: Readership Age Demographics

A person’s opinion on whether they would read a print or online newspaper, may

just boil down to age demographics.

A Pew Center Research study shows that both young and middle-aged Americans

are using online news at about the same rate35. The report says, “50-to-64-year-olds are

about as likely as 18-to-24-year-olds to report having gotten news over the Internet

yesterday (29 percent vs. 30 percent, respectively). Fewer than half as many people ages

65 and older got news from the Internet yesterday (13 percent).36”

This comparison between those who read newspapers and online news in terms of

age demographics is interesting. Clearly those over the age of 65 would be alienated if

print newspapers switched to a completely online medium, but they seem to be the only

age group affected negatively. Otherwise, according to this data, it seems as though
 ! O!

newspapers switching to a completely online medium could potentially bring in more of

the 18-24 and 25-34 age demographics.

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Factor Four: Quality of News

Maintaining the high quality of news is arguably the most important factor to take

into consideration when discussing the possibility of shifting print to online. Advertising

revenue, charging for online content and age demographics can all be taken into

consideration, but it’s important to understand what the effect moving online would have

for newspaper content.

Jim Stovall writes on JPROF about how journalism will improve once

newspapers “die or decline to a minor medium37.” He argues journalism will be better

when it isn’t “chained to the printing press” because there will be more reporting, more

reporters, more different and better ways of telling a story, recognition that journalism

occurs outside the tradition news organization, more respect for the audience, better

writing and better reporting38.

! "D!

While some may agree with his point, what do online journalists actually think of

the impact of online news? When members of the Online News Association were asked

by Pew Research Center’s Project for Excellence in Journalism about the impact of the

Internet on news values, the most cited change was “a loosening of standards and more

carelessness in online news gathering39.” The online journalists said they believed the

web “is changing the fundamental values of journalism – mostly for the worse40.” They

said they were most worried about declining accuracy, which often results from the

pressure news organizations face to break the news first.

When asked what online journalism is doing especially well, 31 percent said the

good use of technological advancements and 30 percent said taking advantage of the

speed of reporting news online41. This is compared to 12 percent who said journalists

were exploiting the potential for greater depth of reporting online and 16 percent who

said online journalism was improving storytelling42.

Whatever the case may be, newspaper critics and online journalists do realize the

potential for online news, even if the industry is not currently fulfilling that potential.

Conclusion

Before I began my research for this case study, I believed a newspaper moving to

a completely online format was a critical and necessary first step to make to save the

newspaper industry. But, after reading more varying opinions, especially those of Alan

Mutter, I realize that much more research and planning need to go into the online

journalism model and the journalism industry’s economic business structure before

newspapers can move completely online. Now, instead of questioning when newspapers
! ""!

are going to cut their print editions and publish online, I am much more focused on how

they will achieve this task.

First, I do agree with TIME’s Henry Luce, who said relying solely advertisers is

“morally abhorrent” because “good journalism required that a publication’s primary duty

be to its readers, not to its advertisers43.” And while I wish we could completely sever all

ties with advertisers, they will still play some sort of role in keeping an online Web site

alive. This is clearly apparent on the homepage of CNN.com as shown in Figure 5. The

Web site recently relaunched a “new and improved” version of the Web site. Notably,

there is a large advertisement in the top right corner (in the 4 spot), which is given the

same space and prominence as the news of the day44. It will be elements like this that will

make a difference in an online newspaper’s web site advertisements.

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And though advertisements are important, I still believe that making users pay for

content is absolutely necessary. The more research I did, the more I realized how

ludicrous it is that online newspapers aren’t charging for content; almost as ludicrous as
! "A!

the anti-trust law forbidding newspapers to sit down and decide to all start charging for

content at the same time.

Currently, Senator Benjamin Cardin has introduced a Newspaper Revitalization

Act that would essentially provide newspapers with a government bailout and allow them

to file under a nonprofit status. I believe this is a complete waste of a bill. Rather, I agree

with Los Angeles Times Columnist Tim Rutten who says the government should use

their power to grant newspapers an exemption to the antitrust laws.

But being granted an exemption is only half the battle. Newspapers would also

need to figure out a working pay model, like the one suggested by Zuora. TIME’s Walter

Isaacson relates newspapers charging for online content to cell phone companies

charging for texting. He says, “We have a world in which phone companies have

accustomed kids to paying up to 20 cents when they send a text message but it seems

technologically and psychologically impossible to get people to pay 10 cents for a

magazine, newspaper or newscast.” Just as we have been trained to search information

for a research paper online instead of looking up information in an encyclopedia, we can

be trained to use an online micropayment system to consume news on the Internet.

As much as I am ready for the transition from print to online to happen tomorrow,

I realize that this is not true for all print readers, especially those of an older generation.

The Pew Research Center study that highlights the newspaper readership related to age

demographics clearly demonstrates the need to maintain print editions for a while longer,

at least until Generation X grows older.

Though I believe that moving print to online will help develop a more sustainable

business model for newspapers, I am most excited about the possibilities of the new types
! "G!

of journalism that can only take place online. The potential for multimedia, more in depth

story telling, interactives and up to date information creates the possibility of making

news more relevant for news consumers, a goal that should always remain at the core of

each journalist’s mission. When print does completely move to an online medium, the

definition of journalism will drastically change and its ability to disseminate the news

will reach great, new levels.

In the future, I hope to study and learn more about this shift from print to online,

not just in the newspaper industry, but also in our daily lives. There is a rich tradition in

print newspapers, and other forms of print communication, but thousands of years ago

there was also a rich tradition in oral storytelling. As technologies change, cultural norms

change and thus traditions change. We should embrace, not fear, the digital revolution.

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! "H!

Works Cited

"CNN.com Gets Major Overhaul: What We Can Learn." Website Magazine. 26 Oct.

2009. Web. 27 Oct. 2009.

<http://www.websitemagazine.com/content/blogs/posts/archive/2009/10/26/cnn-

com-gets-major-overhaul-what-we-can-learn.aspx>.

"Economics." The State of the News Media. Project for Excellence in Journalism and

Rick Edmonds of the Poynter Institute, 2009. Web. 20 Oct. 2009.

<http://www.stateofthemedia.org/2009/narrative_newspapers_economics.php>.

"Internet Advertising to Overtake Print in 2011." Overdrie Interactive. Overdrie

Interactive, 21 Sept. 2009. Web. 20 Oct. 2009.

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print.asp>.

Isaacson, Walter. "How to Save Your Newspaper." TIME. TIME, 5 Feb. 2005. Web. 20

Oct. 2009. <http://www.time.com/time/business/article/0,8599,1877191-

2,00.html>.

Jarvis, Jeff. "History in the making in LA as online ads hit target." Guardian.co.uk.

Guardian.co.uk, 12 Jan. 2009. Web. 20 Oct. 2009.

<http://www.guardian.co.uk/media/2009/jan/12/la-times-online-advertising>.

:S(6!P(,1!*&5$(.3(1!P7,!T;(.5!U.;$.(!2.5!V'25$/$7.2;!>7&'3(=<!V4(!+(,!0(1(2'34!

-(./('!97'!/4(!+(78;(!W!/4(!+'(11=!"N!*&%=!ADDO=!Q(L=!N!X(3=!ADDO=!

Y4//8)ZZ8(78;(@8'(11=7'%Z'(87'/Z[82%($5\"GMG]

Langeveld, Martin. "Print is still king: Only 3 percent of newspaper reading happens

online." Nieman Journalism Lab. 13 Apr. 2009. Web. 20 Oct. 2009.

! "M!

<http://www.niemanlab.org/2009/04/print-is-still-king-only-3-percent-of-

newspaper-reading-actually-happens-online/#more-3994>.

Mutter, Alan D. "Why newspapers can’t stop the presses." Web log post. Reflections of a

Newsosaur. Alan D. Mutter, 1 Feb. 2009. Web.

<http://newsosaur.blogspot.com/2009/02/why-newspapers-cant-stop-

presses.html>.

"Newspapers Face a Challenging Calculus." Pew Research Center Publications. Pew

Research Center, 26 Feb. 2009. Web. 20 Oct. 2009.

<http://pewresearch.org/pubs/1133/decline-print-newspapers-increased-online-

news>.

"Online Journalists Optimistic About Revenue, Concerned About Quality." Pew

Research Center Publications. Pew Research Center, 30 Mar. 2009. Web. 20 Oct.

2009. <http://pewresearch.org/pubs/1172/online-journalists-optimistic-about-

revenues-worried-about-news-quality>.

"Online payment startup Zuora wants to rescue newspapers." MSNBC.com. Agence

France-Presse, 24 Sept. 2009. Web. 20 Oct. 2009. <http://news.sg.msn.com/sci-

tech/article.aspx?cp-documentid=3605444>.

Picard, Robert. "The Poor Connection Between Internet Advertising and Newspaper

Woes." Web log post. The Media Business. 7 Aug. 2009. Web. 20 Oct. 2009.

<http://themediabusiness.blogspot.com/2009/07/poor-connection-between-

internet.html>.

Rushe, Dominic. "Newspapers chase online readers." Times Online. Times Online, 3 May

2009. Web. 20 Oct. 2009.

! "E!

<http://business.timesonline.co.uk/tol/business/industry_sectors/media/article621

1130.ece>.

Rutten, Tim. "Newspapers need an antitrust exemption." Los Angeles Times. Los Angeles

Times, 4 Feb. 2009. Web. <http://www.latimes.com/news/opinion/la-oe-rutten4-

2009feb04,0,4486364.column>.

Stovall, Jim. "The demise of newspapers means better journalism." Web log post.

JPROF: the web site for teaching journalism. JPROF, 8 Feb. 2009. Web. 20 Oct.

2009. <http://jprof.blogspot.com/2009/02/demise-of-newspapers-means-

better.html#>.

"US newspaper circulation plunges 10.6 per cent news." Domain-b.com. Domain-b.com,

27 Oct. 2009. Web. 27 Oct. 2009. <http://www.domain-

b.com/industry/Media/20091027_us_newspaper.html>.

CITATIONS

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