In an interesting opinion piece written for the Wall Street Journal online Walter Hussman, the publisher of the Arkansas Democrat-Gazette, makes the argument that newspapers are killing themselves by providing news on their websites for free.  He compares the circulation losses of newspapers that provide free news on their sites to the gains or less egregious losses of his paper and the Wall Street Journal (they both charge subscription fees for full access to news on their site).  He also throws out some numbers like this:

The Inland Cost and Revenue Study
shows that newspapers will generate between $500 and $900 in revenue
per subscriber per year. But a newspaper’s Web site typically generates
$5 to $10 per unique visitor per year. It may be that newspaper Web
sites as an advertising medium, and free news, just can’t generate the
revenue to sustain a valued news operation.

Without getting into the details (read his piece if you want the details) he goes on to conclude that the decrease in revenue leads to layoffs in the newsroom, which is essentially killing the newspapers’ Golden Goose:

Collectively, the American
newspaper industry spends $7 billion on news and editorial operations.
This includes everything from copy editor salaries to sports travel
expenses. In addition, the Associated Press spent about $600 million
world-wide in editing and creating news. By offering this news for
free, and selling it to aggregators like Google, Yahoo and MSN for a
small fraction of what it costs to create it, newspaper readership and
circulation have declined.

These declines are accelerating.
In 2004 and prior years, industry circulation declines were usually
less than 1%. Since March 2005, these declines have been 2%-3% per
year. With declining readership comes declining ad revenues, which are
followed by layoffs.

The newsroom layoffs are most
troubling, as less news with less quality, context and details results
in more declines in readership and later, declines in advertising. If
the $7 billion spent covering news becomes $6 billion, and later $5
billion, it is not just the newspaper industry that gets hurt.
Journalism will be diminished in America with less investigative and
enterprise reporting; indeed, less reporting of state houses, city
halls, school boards, business and sports. Clearly a lot is at stake.

It is time for newspapers to reconsider the ultimate costs and consequences of free news.

I think there are some very valid points to be made about newspapers charging a subscription for access to their news, but I think Mr. Hussman is being short sighted, and here are some reasons why:

• Ad dollars have only just started to migrate online.  Online advertising is still a relatively immature business and old-line advertisers, agencies and publishers are just now figuring out how to best buy and sell ad inventory.  The online piece of the advertising pie is going to explode and the newspapers that put up a paid wall around their online operations will probably suffer in the long run.
• Web sites are a hell of a lot cheaper to run than printing presses.  When the online advertising takes off the margins of the online operations will make the print guys green with jealousy.
• The "newsroom" is going to look very different in the future.  I think the trend towards a professional staff of writers/editors managing content submitted by semi-pros in the community will continue.  Operations like the Greensboro News & Record are beginning to show that members of the community who have a vested interest in stories are more than willing to provide content for free, or really cheap.  Editorial operations should actually get bigger as a percentage of total head count in the future.

These last three points are a real stretch, but since I have no vested interest and everyone knows I’m not that bright I’m going to make them anyway.

• I think that offset presses are going to eventually be replaced by digital on-demand presses that do small runs for micro-markets.  Think of all those neighborhood editions on a smaller scale.
• With the digital production I think you’ll see micro-market ad packages being sold. The ad rates will be higher on a cost-per-thousand basis, but they will be more attractive to advertisers because they’ll offer more neighborhood-specific targeting.  For instance, if you’re a restaurant wouldn’t you be willing to pay $30/thousand to reach the 5,000 people who live within a 5-mile radius of your restaurant than $10/thousans to reach the entire 100,000 newspaper circulation?
• This type of production might necessitate a new distribution model, i.e. using the US Postal Service for home delivery from Mon-Sat.  Not sure what would be done on Sunday, but the reason this might happen can be found in the direct marketing industry. Direct marketing companies already do household-level prospect targeting using digital production and the USPS Zip+4 database.  You know those Money Mailers you get in the mail all the time?  That’s advertisers buying space in an envelope that they know will be delivered to only select neighborhoods they want to reach.  The newspapers could offer similar targeting.

  You could argue that readers want their paper first thing in the morning, but honestly how many people use their local paper for breaking news?  They get that on TV, the web and radio.  The local paper is for depth of local coverage.  I’d be willing to bet that most people would be okay with reading the paper over dinner rather than breakfast.  Also, because the number of home subscribers is trending down, quickly, it might not be cost effective to have dedicated delivery people who drive around delivering papers door to door. If there are only two deliveries per street how much can a delivery person reasonably expect to make?  On the other hand the mailman is delivering one way or another so why not piggy back?  Obviously the USPS isn’t the only option, but I think it would be interesting to look at it. I’m still not sure what you’d do about Sunday delivery, which is a rather large hole in my thinking.

These are just some of the reasons that I think Mr. Hussman’s conclusions are right in the short term, but not the long term.  The media environment, of which newspapers are but one part, is dynamic.  Mr. Hussman is right to challenge the current thinking in the newspaper industry, but I think his strategy will ultimately limit his newspaper’s growth potential. 

(Cross posted on Lowder Enterprises, LLC).