The Death of TimesSelect As One Of The Web’s Few News Subscription Services Begs The Question Whether Newspapers Should Dump Circulation Revenue And Go For Free Just As They Do On The Web?

Philip M. Stone September 19, 2007

The accountants won the day at the New York Times. Its TimesSelect subscription service was making some $10 million plus on the web– that’s more than petty cash -- but the newspaper killed it even though senior management still thought it was the right long-term strategy. But the accountants made it clear – the company will earn more by opening those pages to paid advertising that everyone can access and with the Times Company shares hitting 10-year lows this week the deed was done.

Sure the op-ed columnists must be clicking their champagne glasses in joy that their verbiage will now be available to a far larger audience, and sure these people have some influence within the Times, but this was a money decision, pure and simple, and it could well be the beginning of the end for paid news on the web. It is not so much that the advertising on the columnist pages will bring in that much new revenue but rather people looking at those pages will then go elsewhere on the site and the more eyeballs looking at more advertising the better.

The only big news subscription site left is the Wall Street Journal’s with 983,000 subscribers paying some $65 million annually. But Rupert Murdoch, in a presentation Tuesday to a Goldman Sachs symposium, says he is still leaning to making the  WSJ web site advertising supported and ditching its subscription model, although he said he has not made a final decision. If that were to happen then paid news subscription sites will be few and far between, there is already speculation the UK’s Financial Times web site with around 100,000 subscribers will also open up.

Which all rather begs that question, if we can read a newspaper for free on the Internet then why should we pay to receive it in print? How come one model works for the Internet and another model is used for print. And the answer may well be that the print model needs revisiting.

Not only have newspapers been suffering from free news on the Internet, but they have also allowed competitive free newspapers to enter their market and really mess things up. Some paid-fors have competed by producing their own free newspapers, while keeping their paid-for strictly paid-for even with downward circulation and advertising fall-offs.

But for a paid-for, circulation revenue is usually worth in the region of 15 – 20% of total revenues. So, here’s the question for the accountants: Is a newspaper better off with that 15- 20% circulation revenue, but with reduced circulation and less advertising, or would it be better off giving away the newspaper doubling, even quadrupling actual copies in distribution and charging advertisers rates that  increased readership merits?

If a newspaper is willing to depend on the advertising model alone on the Internet, then why not in print, too? Can increased print advertising rates for higher readership make the lost circulation revenue minimal in the consideration?

There are already signs of newspapers beginning to move in that direction. In the UK, the ManchesterEvening News last year started giving away 50,000 copies downtown while still selling the newspaper in the suburbs. A year on and it is now giving away more than 90,000 copies downtown, more than the 86,923 sold in the suburbs. That means that circulation revenue has fallen 24.2% over the past year, but the newspaper is still able to gloat that its combined free and paid circulation makes it the country’s largest regional newspaper, its advertisers are happy and are paying accordingly, and the newspaper doesn’t seem overly concerned at the loss in circulation revenue.

And in the outskirts of London a tiny regional newspaper has taken that a step further. The Reading Evening Post had a daily circulation of just 13,664 plus another 1600 copies it gave away at business parks and the like. As an experiment, on Wednesdays it gave away 80,000 copies across town. It must have liked the results for now it has announced it will be giving 80,000 copies away Monday – Friday.

What has to be remembered about print newspapers is that they are still cash-cow machines, and all the cost-cutting steps taken are to try and maintain high margins. In 2005 margins were on average around 19% and last year they fell to 17% but there are plenty of businesses out there that would kill for those types of numbers.

Last year Lauren Rich Fine, the now retired very well respected media analyst for Merrill Lynch spoke to the American Copy Editors Society, and some of what she said then should not be lost on publishers today.

Editorially, she said print newspapers have gone astray by using the front page for stories that readers don’t really want there – they’ve seen or heard most of that breaking news elsewhere.  What readers expect from their newspapers is context, analysis and stories they just won’t find anywhere else.

She said newspapers were making a big mistake by trying to become more youth friendly to recapture those readers.  “Here’s a news flash,” she said, “You don’t want to change your newspaper to be a youth rag because they will never read it.” That’s the market most free newspapers go after, the current paid-fors have a different readership and they need to strengthen their targeting of that audience.

And so her recommendations for the industry:

• Accept that circulation is in decline. Raising newsstand and subscription prices are not the solution. It’s a minority revenue stream, anyway at 15%-20%.
• Put up the “work in progress” sign and don’t pay attention to Wall Street or anyone else. Figure out what’s wrong, take the time and money to fix it, even if it takes five years
• Keep the shareholders happy by returning some of that cash flow in the form of share repurchases or higher dividends, but don’t worry about the share price. Let it drop. It will buy you time to try things out.
• Try many things but if you see they don’t work then cut to the next new thing. Don’t burn up precious cash.

So, improve the print editorial product, don’t be afraid to experiment, don’t worry about falling circulation revenues, consider changing business models to be a “work in progress”  and if something doesn’t work don’t be afraid to dump it and go on to something else. Still sounds like sound advice today.

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