Growth5 Blog

Friday, February 19, 2010

You Won't Pay for News Online - You Want to be Paid to Read It

Hal Varian, Google's Chief Economist, recently spoke at Berkeley's Graduate School of Journalism about the economics of online news. The highlights:
1. Online advertising revenue represents only 5% of overall newspaper revenue.

2. Newspaper circulation has been in decline since:
-1990 when looking at overall circulation;
-1960 when crossed against the population; and
-1945 per household (can't blame the internet for this 55-year decline).

3. Varian believes people won't spend money on an online product that they are willing to buy in hard copy.

​4. Google news access goes up during the day, down in the evening, and way, way down over the weekend. Americans still spend much more time with print newspapers than they do with news online -- one Nielsen study found that Internet users spent an average of 38 minutes total per month on newspaper sites.
People aren't reading news online at night or on the weekends. PAY FOR IT? THEY AREN'T EVEN READING IT.
5. Reading news online at work as a distraction is easy because you're being paid to do so.
Employers around the US cringe simultaneously.
6. To the extent that reading an actual newspaper is an activity in itself, Varian argued, people are willing to pay for it, in a way they aren't willing to pay for a couple minutes of distraction at work. So the challenge for newspapers would be to reinvent a way to make reading news a leisure-time activity. Then -- and only then -- will readers be willing to pay for content.
Is the iPad the solution? If online advertising is currently only 5% of newspaper revenue and newspaper circulation is in perpetual decline, the iPad would have to help newspapers overcome 95% of their current revenue by getting people to pay for online news while curled up with their iPad on nights and weekends. Not going to happen.

At some point soon, the majority of newspapers across the country will have to find a way to provide news online only. Making money on the production and distribution of the printed version is no longer a viable business model for most newspapers. It's similar to the perpetual decline of retail music sales vs. the perpetual increase of online music sales.

Once bandwidth increases, the same thing will happen to the dvd industry - replacing hard copy production/distribution in stores with digital files online.

Perhaps it's time to dust off Mark Cuban's suggestion from last year – it would be more cost effective for newspapers to shut down print production entirely and buy all of their subscribers Kindles. Now you can give them the option of the Kindle or the iPad.

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