Paid content or community: business models for the regional press

• As an addendum to my previous post, I thought I'd publish a speech I gave at Warwick Business School in October 2009. It was part of a debate snappily titled 'Does Business News no Longer make for Good Business?' Please note I made the speech just before it was announced that the Birmingham Post was going from daily to weekly publishing, and I would be stepping down as editor.

I've been asked to talk today about the challenges facing the Post and other parts of the media - particularly the printed media, and how we're coping in this digital age.

At the risk of delivering an economics lecture, I hope you'll allow me to share with you the internal workings of the regional publishing business, and particularly address the hot topic of
the moment in my industry - that of charging readers to access our material online. Many hope that this is the way to make our businesses profitable in the future.

By way of intro, this business will lose £6 million next year unless the Post and its sister papers undergo some fundamental changes.

I might have started my career as a jobbing journalist but you cannot be an editor in today’s media environment without also being a businessman. It might say editor on my business card, but really, I am in the business of making news profitable and budgets, targets and performance are as important to me as words and newsprint.

Today's debate in my view isn't so much about the role of business journalism in a modern economy so much as how business journalism can itself be part of a profitable business model.

I will deliberately leave to one side the questions of public service publishing and top-slicing the licence fee, because the revival of the regional press simply has to be built on profitable business models. Public money will no doubt play a part, but in my view should only ever be secondary. The spark of profit I believe is the best defence against the establishment consensus that inevitably follows state handouts to journalism.
I've been following the debate about charging for online content with a mixture of amusement and bafflement - for two reasons.

The first is that the debate over charging for online content seems to assume that content in print has always been paid-for, and content online is free. Actually, content has always been free: it’s just been getting away with living off the back of advertising for all these years

The second reason is that while paying for online content will certainly be an important activity for the succesful publishers of the future, anyone who thinks it’s the sole answer to an industry’s ills is severely mistaken.
Despite this, I am in fact confident that there is profit to be made out of the job of business journalism, and I'll explain why later.

So let’s talk about the economics of publishing. I'd hazard a guess that there's more than one or two of my readers that believe the meagre 70p they hand over at the newsagents for their daily copy is the transaction upon which my business is built. Of course, while the relationship with the reader is central, in purely financial terms, they're very wide of the mark.

How can your 70p cover the labour, the training - the pensions – of my staff? Not just the journalists, of course, but the advertising sales people, the van drivers, the printers, the HR people and the bean counters. And what of the press itself, the paper and ink we consume, our infrastructure and technology? Oh, and how about some profit, too, for our shareholders?

That 70p doesn’t even cover the cost of printing the paper and getting it to you. You are receiving a subsidy, and that subsidy is called advertising.

Indeed, advertisers in the regional press are effectively subsidising readers to the tune of 80%. It’s advertisers' money that pays me, my staff and generates a profit for the company. Or it used to.

For as long as there’s been advertising around, news content has, in fact, been largely free. Which is why I’m intrigued that now we’re facing the biggest crisis of our history, newspapers have suddenly decided to start charging for something that’s been virtually free to the consumer for hundreds of years. But more of that later.

You can see, then, that when something comes along to threaten our advertising base the industry is plunged into turmoil, and that’s why papers like the Post are facing up to some very difficult decisions in order just to survive.

A recent survey by the Internet Advertising Bureau garnered headlines last month because for the first time, ad spend on the web overtook TV marketing. But there’s another statistic in there that chillingly illustrates the threat to newspapers.

The net’s take of advertising revenues grew by 4.6% year on year, despite total ad spending shrinking by 16.6%. Growth was particularly high in classified advertising with a 10.6% increase to £385 million. A significant proportion of that will have come from newspapers.

Just pause there – advertising on the web is continuing to grow – despite total ad spend going down.
And it’s not just the regional press where you’ll find readers and content getting a subsidy. In the national press, the proportion of advertising to total revenue is somewhat smaller, but here, it’s proprietors who are subsidising the readers.

Those national newspapers without the deep pockets of proprietors have responded by raising cover prices to increase revenue – in other words bolstering there paid content strategy, but in print.

But since 2001, the circulation of national papers has dropped an average of 19%. During the same period, the average cover price has gone up by almost 30%. So increases in cover price have coincided with a steady erosion of audiences for newspapers. How long can that strategy work, and what does that suggest to us about the efficacy of a similar pricing strategy for online content?

And we've already established that circulation revenue alone isn’t enough to support newspapers in their current guise as it is. By what logic does the online equivalent of circulation revenue - ie charging for content - suddenly balance the books for those same publishers?

OK. Let’s consider the case study that has become a focal point for all publishers seeking to make money from their content – FT.Com.

Undoubtedly a brilliant move, the FT’s decision in the early part of this decade to charge for some of its content made the brand an icon for the new media age. It recognised that when you put unique and high value content together with the utility and convenience of consuming it digitally, you've got a powerful formula.
So surely, say other publishers, if the FT can make it work, so can we. But let’s look more closely at what the FT has done and see what we can learn from the actual numbers involved.

Of its total online readership, how many people has FT.com converted into subscribers? The answer is around half a million – but only 20% of them actually pay real money for the premium service. Look at it this way: The FT has converted only 0.4 percent of its online user base to paid subscribers. Now of course, these 100,000 people are worth having, not only for their subs but for the additional opportunities the FT has to sell up other services to them. But if that’s the metric that the FT is built on, what does that mean for publishers with much less specialised content?

Last month, a PaidContent UK Harris poll revealed that only five per cent of readers in the UK think they’d pay for online content, and even then they’re not prepared to pay very much for it.

I ran some of this survey’s numbers against the P&L of a typical regional paper – not the Post, I hasten to add – to measure how much revenue it could expect to turn over by going to a paid content model online. I took what the survey said would be the proportion of people you could expect to subscribe and applied it to the title’s existing online readership. You then factor in the amount people say they’d be willing to pay to get to the revenue number that is supposedly going to save the national and regional press.

Bad news, folks. In the example I looked at, you’d raise barely enough to employ two trainee reporters, let alone fill the gap left by our disappearing ad revenues.

There’s another problem with this – the direction of travel for advertising spend has been going one way only for the past ten years – online – and that’s not going to change anytime soon. Can regional publishers have any hope of benefiting from this relentless migration when at the same time they’re erecting online paywalls to block the paths of millions of potential readers?

Please don’t think I’m rejecting the notion of paid content online – I’m not. It will have an increasing role to play in the strategies of news providers – particularly in business journalism, where insightful, timely and relevant information can help you to make money, and you’re therefore prepared to pay for some of it. But I’ve shown that a strategy that’s based solely on charging for content won’t be enough for publishers.
And that’s where the FT does have a lesson for us. I don’t think fundamentally that FT subscribers are paying for news content. Sure, that’s the tangible ‘thing’ they’d say they’re buying, but I believe they’re actually buying into a club – and a pretty exclusive one at that. Once they’re in, they have a sense of belonging, of warmth towards the host. All the things that marketers put at the top of the list of things brands should aspire to have – loyalty, advocacy, trust and the like. All the things that open the door to the concepts of ‘selling up’ of charging premium prices for premium services.

The Guardian has also announced the launch of a new pay-to-join readers' club, and it's already called a charge-for-content model as 'stupid'. And News International today launched Times+ a £50 annual membership scheme which allows readers access to special events and exclusive offers. The NI boss in charge of the scheme said:"We are moving away from the traditional model of volume in favour of developing more direct relationships with our customers based on their interests and passions."

This is where the future lies, and while business journalism - or journalism of any kind - will be important, it will only be as important as its role in capturing and keeping paying guests on the online property of the publisher. If it also takes other, non-journalistic services to keep the customers happy, then journalism will have to take its place in the pecking order.

In the old days, all you had to do was chuck a quarter page ad next to some content, and away you go. Now, though, content alone isn’t enough: it’s the value you add to the experience of coming aboard to access that information that counts.

 From a regional and local press perspective, let’s not forget that we are regarded as the most trusted of all media, genuinely cherished by readers and respected by communities with a broad appeal which attracts a large readership and a receptive audience for advertisers.

But if we are to continue to enjoy this position, we need to learn how to harness a powerful combination of print and digital. Our core values of trust, relevance and integrity will remain and as genuine cross-media businesses there will be many more options and opportunities available to us. The challenge for us in the future is going to be engaging with this broad range of new communications channels.

Publishers are going to have to become relationship managers, event organisers, providers of services related to their core content. The communities that form around providers of essential business information could even morph into other entities altogether. Who needs a networking organisation like Birmingham Forward if you’re meeting like minded business people via the Birmingham Post? Why can’t the Birmingham Post become a source of financial services, business advice and education? All these elements revolving around a central core of challenging, insightful and relevant business journalism – now paid-for profitably by whole new streams of revenue, only some of which could be labelled advertising on the old sense of the word.

At the Birmingham Post, we're right in the eye of this particularly perfect publishing storm. Our small circulation has declined like any other, and most of our advertisers have slashed budgets as well as diverted what's left into online marketing. We can't reach the nirvana of a vibrant online community overnight, although we've made headway and will make more if our proposals to convert weekly model come to fruition. We simply have to make what we do in print work for us - and by that I mean make a profit - so that we have a platform from which to develop our online communities.

You'll see more about these in the days and weeks to come, and while I can't yet reveal many of the details in public, I hope I've given you a useful insight into the moving parts that continue to make working in the regional media the most stimulating of careers.