Why isn’t the New York Times charging for its online news content?

What are they waiting for?

Why haven’t America’s ailing newspapers, plagued by slumping circulation as readers flock to the web, begun charging for the news they are currently offering for free online?

Why hasn’t the country’s leading paper, the New York Times, led the way in moving from an online advertising-only economic model to one that includes subscription revenues? Is it denial? A stubborn refusal to change a flawed strategy? Risk aversion?

By now, the existential threat to newspapers is clear. Several major newspapers have been forced into bankruptcy; two venerable metros have recently closed (the Rocky Mountain News) or switched to online publication only (Seattle Post-Intelligencer). Rapidly declining newspaper circulation figures suggest that the reader shift to the web is accelerating.

The publicly-traded New York Times Company, owner of the New York Times, has seen its financial position deteriorate and its stock price slide over the past several years as the disruptive effects of the Internet, coupled with the economic slowdown, has caused dramatic declines in print advertising. The suddenly cash-strapped company has been forced into a series of dramatic steps: borrowing $250 million from Mexican oligarch and billionaire Carlos Slim; threatening to shutter the Boston Globe, one of its newspaper holdings, if the unions there didn’t produce $20 million in savings; and suspending dividend payments to shareholders (and to the controlling Sulzberger family members).

The picture isn’t all bleak. The website of the New York Times (www.nytimes.com) attracts large numbers of unique viewers, some 19 to 20 million “uniques” a month. Even discounting that number for repeat visits (as media observers like Alan Jacobson argue is necessary), the nytimes.com traffic dwarfs the one million daily purchasers of the print edition of the paper.

Paying for the news

But the Times has resisted charging for its online content, unlike the Wall Street Journal, which reserves its news content for paying web customers. (Visitors can access the Journal‘s opinion and commentary at no cost.) While other newspapers dither, the Journal has announced it will introduce micro-payments for individual articles to its website in the fall.

In contrast, the Times has embraced the “information longs to be free” mantra, envisioning an advertising-only supported Internet future. The focus has been on building traffic and seeking to “monetize” this audience through advertising. (A brief excursion into paid content, Times Select, which charged for online access to New York Times columnists, was abandoned.) Yet the Times has discovered it can only charge online advertisers a fraction of what it gets from print.

Since online advertising revenue represents only some 10 percent of the company’s revenue, it’s puzzling why the Times hasn’t moved towards a paid content model. A quick back-of-envelope calculation suggests that if 10% of current nytimes.com unique visitors could be converted to online subscriptions, the Times would add some 2 million paying customers overnight.

How much would this be worth to the Times? It depends, of course, on the price, on how much online subscribers are willing to pay for digital news. It’s unlikely the Times can command the $600 or so it asks from print subscribers, but even matching the Journal‘s current online annual price of $103 would generate considerable revenue. While there might be some short-term drop off in online advertising because of lowered traffic, the Times could make the argument that the remaining visitors represent loyal and committed readers (with, no doubt, attractive demographics.)

And if the Times adopts an online subscription model, it’s more than likely the rest of the newspaper industry will follow its lead. Establishing paid online content won’t solve all of the economic and financial issues facing American newspapers, but it will represent a start in changing the dynamics.

Some newspaper publishers may hesitate at charging for news content because they worry Internet consumers won’t pay for it. To the extent that what they offer isn’t unique or relevant, they may be right—but there has always been a market for “journalism that matters.” What matters differs from community to community, but those editors and publishers who can identify and deliver it should have a viable business, although not with the monopoly profits of the past. That does suggest that news organizations of the future, even elite ones like the New York Times, will have to be more focused in coverage and leaner in staffing.

What lies ahead?

Shifting to an online paid model isn’t without risk, and without pain. Google and other news aggregators may steer visitors towards free content sites, reducing traffic to the newspapers’ paid content. Everyone in the online news enterprise has to be prepared for a reduced audience. Any negative impact on civic discourse can be somewhat mitigated by following the Journal‘s practice of allowing free access to commentary and columns. In the short term, newspapers will most likely see their web presence diminished; publishers and editors will have to remind themselves that survival comes first, Internet bragging rights second.

In any event, it’s not an attractive future for those who lived through the post-Watergate monopoly years when elite newspapers attracted the best and brightest to journalism, newspaper companies were awash in cash, and stock prices climbed. Today’s sobering reality has encouraged many in the industry to cast about for what could be termed non-market alternatives: newspapers supported by government-subsidies or nonprofit foundations.

Are these non-market-based alternatives to a downsized, lean newspaper future viable? University of North Carolina journalism professor Penelope Muse Abernathy recently looked at four different scenarios for “saving” the New York Times in order to “preserve and protect its unique journalism and watchdog role in the 21st century.” Three were nonprofit solutions: setting up an endowment to support the news department’s annual $200 million budget; foundation support aimed at underwriting news coverage; and the purchase and operation of the paper by an educational institution. The fourth solution involved the intervention of an “angel investor” who “would be willing both to adequately compensate the Sulzberger family members and to assume or retire the debt and other liabilities.” (Full disclosure: I worked with Abernathy at the New York Times Company when we were both in management roles there.)

On the idea of endowing the Times, Abernathy wonders who would invest the necessary $5 billion “…if there was the opportunity to buy all the assets of the Times for less (based on current valuations) and restructure the costs and debt load for the 21st century.” On the second option, she questions whether the cyclical nature of foundation grants would provide enough stability for underwriting the news, and suggests that just to cover the annual costs of the Times’ foreign news coverage ($60-$70 million) would require a $1 billion endowment from an “enlightened philanthropist” and additional grants and contributions.

The university option has drawbacks as well. Is there a university, she asks, willing to “devote considerable management bandwidth to transforming the Times business model, on both the revenue and cost side, in order to get the ROI more in line with other alternative investments it might pursue”? Considering the economic pressures on higher education, the answer is likely to be “no.”

Abernathy touches only briefly on the angel investor or White Knight scenario for the Times, noting that the sale of the company to an individual investor could “precipitate a renegotiation with the unions and result in a restructuring of the Times’ costs to make it more competitive and better able to survive and thrive in the digital age. Certainly an individual investor would have a better chance of maintaining the laser-like focus needed to implement transformational change.” Finding an investor willing to take on the challenge, whose motives (vanity? power? political causes?) pass journalistic scrutiny, is problematic: a purchase engineered by moguls David Geffen or Carlos Slim could further erode the distinction between news and editorial at the Times, or present troubling conflicts-of-interest in coverage.

Market solutions and independence

Adjusting to the new market realities appears the best way for the New York Times and other newspapers to preserve their independence. It will allow them to avoid schemes where they are beholden to politicians (government subsidies), wealthy donors (non-profit alternatives), or White Knights with questionable motives (the Slim/Geffen option). Further, market pressures often spark innovation. Abernathy cites the thinking of Yale’s Richard Foster on this question; Foster “argues that, historically, companies in the throes of creative destruction have been much more likely to achieve transformational change if they stay in the for-profit arena.”

There is an audience willing to pay for news on the web. While the economics of paid content and some web advertising will not support mega-bonuses for publishers and lavish expense accounts for foreign bureaus, it should allow for focused quality journalism. It may also leave us with those civic-minded publishers who, as the old saying goes, seek to make money so they can publish newspapers, and not the other way around.

Copyright © 2009 Jefferson Flanders
All rights reserved

April 2009: Nobody asked me, but

Kant and the torture debate, Coors Field East, and other observations

With tip of the ballcap (for borrowing his signature phrase) to the late, great New York newspaper columnist Jimmy Cannon: nobody asked me, but…

THE RECENT DEBATE OVER TORTURE HAS FOUND THE NATION’S CAPITAL FILLED WITH… KANTIANS. The 19th century German philosopher Immanuel Kant, famous for his advocacy of duty-based ethics, argued that universal maxims, once established, should be followed no matter the circumstances or consequences. President Barack Obama and many liberal Democrats have taken a decidedly Kantian position on what they call torture (and neo-conservatives call “enhanced interrogation techniques”), maintaining that it should never be employed under any circumstances, and that captured terror suspects should be interrogated only under the restrictive rules of the Army Field Manual.

Obama and his allies have undercut their profession of Kantian absolutism, however, by considering the question of whether the CIA’s waterboarding of Al Qaeda terrorists was effective (they say it was not, although Obama’s director of national intelligence, Dennis Blair, stated that those harsh interrogations did  produce “high-value information”). But as any self-respecting Kantian knows, the utility of an action is immaterial to its morality. To put it another way: if you decide torture is always wrong, if you make its abolition a Categorical Imperative (in Kantian terms, an unconditional moral law) it doesn’t matter whether it works or not. Kant on this question: “Do what is right, though the world may perish.”

A different strain of moral philosophy, consequentialism, holds that the morality of an action should be judged by its results. This, of course, is the philosophic position taken by the circle around President George W. Bush. They argue that “enhanced interrogation techniques” saved American lives by staving off additional post-9/11 terror attacks.  Consequentialism is a more pragmatic approach, which is perhaps why the philosophic movement advanced by Charles Peirce, William James and John Dewey was called Pragmatism. It’s a theory with clear appeal for results-oriented Americans.

What if the CIA takes an Al Qaeda leader into custody who is likely to know the operational details of a planned attack on the New York subways? Under Kantian principles, you would refrain from torture (or “enchanced interrogation techniques”) no matter the consequences, no matter the potential loss of life. Would CIA head Leon Panetta and Obama hold to their Army Field Manual standard for interrogation, which one critic argued “is so anemic, that it goes below the level of coercion associated with police station level of interrogation”? Panetta has sent mixed signals about how far he would be willing to go, telling the Senate Intelligence Committee in his confirmation hearings:

“If we had the ticking bomb situation and I felt that whatever we were using wasn’t sufficient, I would not hesitate to go to the president and request any additional authority that we would need.”

Establishing an absolute ban on torture but seeking “additional authority” to “enhance” interrogation could easily mutate into a policy very much like the Bush Administration’s. Or as the Who once sang: “Meet the new boss/Same as the old boss.”

The most puzzling aspect of the torture debate is President Obama’s decision to release memos from the Bush years dealing with enhanced interrogation, and then “making it clear that he does not intend to press charges against those involved in the decision-making or the interrogations. ” Why trigger a national debate over the issue if you aren’t going to seek a resolution either through prosecution or Congressional hearings? (For the record: I take a Kantian position against any use of  those techniques, like waterboarding, which have been regarded as torture for centuries and “shock the conscience.”)

MONEY CAN’T BUY LOVE, IT’S SAID, AND THE NEW YORK YANKEES WILL ONCE AGAIN PROVE THAT IT CAN’T PURCHASE THE AMERICAN LEAGUE PENNANT. The Yanks are off to a slow start, dropping their first five games to their hated rival, the Boston Red Sox, and watching home runs sail out of the new Yankee Stadium at record pace (some are calling it Coors Field East!). All this despite (or perhaps because of) the highest payroll in major league baseball!

COUNT ON COLUMNIST FROMA HARROP FOR UNCONVENTIONAL INSIGHTS, nowhere more apparent than in her recent musings on the state of marriage circa 2009: “A Nation of Unwed Drudgery.” Harrop looks at the growing trend of  single motherhood and notes that the fathers involved often go AWOL, walking away from their responsibilities for childrearing. The result: “Most such single mothers become beasts of burden.” To provide some context: when Daniel Patrick Moynihan warned of the dangers to social cohesion presented by illegitimacy in his controversial 1965 report “The Negro Family: The Case for National Action,” the illegitimacy rate stood 22 percent for black Americans and 8 percent nationally. Today, those numbers are 71 percent and 38 percent.

It is hard to imagine how many of the pressing domestic challenges, from income inequality to crime to inadequate education, can be effectively addressed without confronting this breakdown in the nuclear family. That will require changes in government tax policy to support married couples, a change in the cultural attitudes about unwed motherhood, and a recognition that silence about these issues no longer suffices. Can these disturbing trends be reversed? Difficult, but not impossible.

WHAT IS GLOBAL CAPITALISM’S FUTURE? Paul Kennedy offered his predictions in a fascinating Financial Times essay in March. Kennedy discounts the prospects of an egalitarian, Marxist alternative, and instead posits a “new post-excess neocapitalist political economy.” He adds:

It will be a system where the animal spirits of the market will be closely watched (and tamed) by a variety of national and international zookeepers – a taming of which the great bulk of the spectators will heartily approve – but there will be no ritual murder of the free-enterprise principle, even if we have to plunge further into depression for the next years.

“DO AS I SAY, NOT AS I DO” MUST BE THE MANTRA OF THE NEW YORK TIMES COMPANY, as its hard-ball negotiating tactics with the Boston Globe hardly match up with the editorial positions taken by the Times on employer-labor issues. The New York Times Company has successfully pressured the unions at the Globe for major concessions (including cuts in health care and other benefits) and threatened to shut down Boston’s leading newspaper if it didn’t get those givebacks. It’s not the stance you would expect from an organization whose flagship newspaper has long carried pro-union editorials (including support for the Employee Free Choice Act, which would eliminate secret ballot elections on the question of union representation). Full disclosure:  In the past, I worked for both the New York Times Company and the Boston Globe.

THIS MONTH’S WORDS OF WISDOM FROM AMERICAN WRITER SUSAN SONTAG (1933-2004): “I envy paranoids. They actually feel someone is paying attention to them.”

Copyright © 2009 Jefferson Flanders
All rights reserve