Does not compute: a look at news media’s existential crisis

It’s hard not to notice the strife New Zealand newspaper publishers are in. Difficulty securing advertising post-global recession, combined with an exodus of readers from print to online is manifesting itself in major job cuts, massive drops in stock price and restructurings here and abroad.

Of primary concern to the still predominantly print-based newspaper industry is the trend of consumers getting their current affairs fix for free online, which is increasingly rendering those paid-for print products superfluous. And with fewer eyeballs in print comes smaller revenues from circulation and advertising. PwC’s latest global media outlook has New Zealand print newspaper ad revenues declining by an average of five percent per year for the next five years. By 2015 it expects newspapers will be overtaken by online and it predicts newspaper advertising spending will fall to $483 million in 2016. On the plus side, it also predicts circulation spend will increase to $286 million from $257 million in the next five years. 

The conundrum for publishers is the money being made online is still chump-change compared to what was being made in the days when old media’s rivers of gold were flowing. Classified revenue was the first to go as jobs, real estate and for sale listings shifted online (Fairfax’s decision to buy TradeMe for $700 million in 2006 was a good one but it sold its remaining 51 percent stake late last year for $810 million to help pay off debt). And now digital is also eating into display revenue. In New Zealand, newspapers have lost almost $300 million of advertising revenue since 2007 and while newspaper sites can count online advertising as a new revenue stream, a Pew Research Center study released last year showed US newspapers are losing US$16 in print revenue for every US$1 of digital they gain. 

Print certainly isn’t dead (and in New Zealand, it’s still fairly strong, particularly in the regions), but it’s been dealt a critical blow and it may prove to be lethal for some newspaper companies. 

The paywall business case

For many publishers that Hail Mary pass is paid online content, specifically using a paywall that puts online content behind a barrier, making it only accessible to paying users. This can be in the form of subscriptions or micro-payments. 

The concept is far from new, but only in recent years have paywalls seen wider adoption. In the US there are over 300 newspaper websites with full or partial paywalls, including major titles from Gannet, News Corporation and The New York Times. The uptake amongst New Zealand publishers has been slow in comparison, many fearing the loss of online readership that follows implementing a paywall (the Ashburton Guardian and Whakatane Beacon have given it a nudge). As some have said, if readers aren’t paying for content, they’re the product. But it’s still a supremely difficult task to ask readers to pay for something they’ve been getting for free for so long, says Science Media Centre’s managing founder Peter Griffin, who went to the US on a Fullbright-Harkness Fellowship at the start of the year to research the future of digital current affairs and public interest journalism. 

“The newspaper industry needs to make up for the lost decade where it gave away its content and the hard work of its journalists for free,” he says.

He says the biggest trend in the newspaper industry in recent times has been the shift of power away from news outlets to the consumer, who, thanks to the internet, is no longer reliant on their local paper for current affairs.

“[Newspapers] are struggling for relevancy, that’s why they’re embracing social media. Fewer people are going directly to newspaper websites. For a lot of us social media is where we read our news,” says Griffin. “Social media is threatening to make them irrelevant as discrete news outlets and you can see them scrambling.”

Griffin has first hand experience when it comes newspapers trying to monetise digital content. He was a columnist at The New Zealand Herald when it launched its short-lived paywall in 2005. The Herald’s method put premium content such as opinion pieces behind a pay mechanism, with the goal of leveraging the brands of writers such as Griffin, Kerre Woodham and Brian Gaynor and turn it into paid subscriptions from their audience. The reality was completely different.

“It was a disaster. Those of us sitting behind the paywall resented it … worst of all our engagement with the community dried up overnight. We were in the dark and felt a lot like mushrooms,” says Griffin.

If a paywall is the answer, it has to be done well and done across the board he says, but even then it will face challenges.

Business as unusual

The National Business Review’s forays into making digital profitable began in the ‘90s with a simple website. For the most part, what appears on NBR Online is different to what appears in the print edition that goes out every Friday. It’s almost prehistoric compared to what The NBR offers today, but it was profitable according to current publisher Todd Scott. This all changed towards the turn of the century and by the mid-2000s NBR Online was in a poor state.

“We had no idea what we were doing. The reality was we weren’t making any money and we weren’t able to offer anything meaningful because we were giving it all away,” he says.

Scott was hired in 2008 by then publisher Barry Colman to make NBR Online profitable. Scott’s priority was to improve the advertising support for online content, but he says it quickly became apparent that paid content was needed to sustain the journalistic work on the site.

“Quality costs money,” says Scott. Although there was a bit of “jumping up and down” from some of its readership, Scott adds The NBR’s audience (mostly business professionals) understood that concept well.

Since implementing its paywall in 2009, it has brought onboard 2,700 digital subscribers, who pay $220 per year ($120 with a print subscription discount) for access to website content locked away behind a blue padlock icon.

Perhaps The NBR’s most significant digital achievement is its company-level subscription plans, which launched last year. Using internet protocol (IP) addresses, it is able to give blanket access to staff at the companies that subscribe to the plan (anecdotally, this was happening before this scheme’s arrival with individual log-ins being shared around offices). Scott says in 2009 there were three large (and unnamed) companies that were paying $7,000 a year for all-you-can-eat subscriptions to NBR Online. The technology for IP-based subscriptions was already there on the NBR website, it was just a matter of seeing it as a viable option and pressing go.

“Barry [Colman] and I came to the conclusion that there are roughly 3,000 individuals in New Zealand willing to pay for a subscription to an online, business-focused publication. We accepted that, but to make ends meet we needed to either increase individual subscriptions dramatically or come up with something like the IP subs,” he says. “The great thing about it is many of our individual online subscribers have come from the exposure we’ve gotten from companies promoting their NBR IP subscriptions internally.”

Scott keeps revenue figures (and costs of running a modern newsroom) close to his chest, so it’s difficult to gauge whether The NBR paywall is commercially sustainable. A quick calculation from the subscription numbers and current fees indicate a best-case scenario of around $900,000 per year from digital subscriptions, with advertising revenue on top of that. 

“What I can say is after four years of hard graft we’re putting some black ink in the printer. We’ve certainly gone through our share of red,” he says. 

NBR Online’s recent strides come at a time where the print side of the business is in decline. According to the latest New Zealand Audit Bureau of Circulations, its print circulation has dropped by 12 percent in the last year and now sits at just over 7,000 subscribers. It, along with fellow weeklies such as the Sunday Star-Times and Sunday News, has seen consistent declines in the past several quarters and, not surprisingly, it’s also fairly thin on ads. 

“All business units should stand alone and justify their own existence. I’m immensely proud of the 7,000 subscribers we have in print … there’s life in both areas as long as we keep our focus on good business journalism,” says Scott. “I believe paid content does work online because I’ve seen it with my own eyes. People are willing to pay for quality content. However, there’s an expectation from the readers that’s very demanding. Companies shouldn’t get involved with paywalls if they’re not in a position to deliver the resources required to support that level of content.”

The Big Two

Source: IABNZ

The first Fairfax Media New Zealand paper to step online was The Press in Christchurch almost 15 years ago (back in the Independent News Limited days), initially as a side project by one of the more web-savvy team members. Since then, the Australian-owned media company has launched several other papers online and its news portal Stuff.co.nz, which holds the distinction of being the most popular news site in the country. The importance of Fairfax’s online presence has grown significantly, says group digital editor Sinead Boucher, both in terms of revenue and the weight it brings to the boardroom table.

“It’s an integral part of what we do … Digital is very much a senior partner in the editorial structure,” she says.

Fairfax’s digital revenue is only a small component of its overall take, which is still dominated by print advertising. However, Boucher claims it’s growing at a rate above market average.

The majority of Fairfax’s online revenue comes in two forms: banner display ads or sponsored content and sections. The banner displays are self-explanatory, leveraging the mainstream appeal of Stuff.co.nz, which according to Nielsen Online Ratings in April had more than 99 million page impressions from an average unique audience of 1.28 million. And while display revenue still plays a major role in the make up of Fairfax’s online coffers, the focus has now shifted to paid content partnerships with brands. 

“On one end you might have straight news inside of a sponsored section, on the other you’ll have advertorial content—and the many shades in between,” says Boucher.

A longstanding partner in this content marketing venture is Tourism Australia, which sponsors Stuff’s travel section. This can manifest itself as something as small as a Tourism Australia logo next to the travel section, a full page take over or custom content areas for the client such as the ‘Best of Australia’ sub-category. Boucher says this kind of sponsorship has been lucrative for Fairfax and is something the business is seeking to do more of.

Fairfax has deep roots in static content, but video and interactive media have seen a massive surge as online video consumption rises. In May, Fairfax served 5.3 million video streams, up from 1.1 million in 2012. Most of those streams have a pre-load ad, bringing in more revenue.

In May, Fairfax New Zealand acting general manager Andrew Boyle told StopPress that paywalls were one of the options being considered to boost the media company’s bottom line. In Australia, fellow Fairfax papers The Age in Melbourne and The Sydney Morning Herald are already implementing paywalls. Boyle said all this while talking about job cuts across the business, but Boucher says digital will remain largely unaffected.

“None of the structural changes here or in Australia are meant to affect digital. In fact, they’re designed to enhance digital capability. We’re still investing in this area. For instance our new data journalism team … which worked on the [Budget 2013] visualisation and graphs,” she says.

APN NZ is heading along a similar trajectory to Fairfax, shifting focus towards better audience engagement and stronger brand partnerships. And just like Fairfax, Cathy O’Sullivan, editor of nzherald.co.nz and head of news, says the company is currently in the midst of a paywall project to explore if and how a paid content system should be implemented.

“It’s no great secret that we’re looking at how to increase the value of digital journalism. We’ve got quite a big project in that space which involves many people around APN and externally,” she says.

Despite his poor experiences with the Herald’s paywall, Griffin says it’s vital for the country’s two largest newspaper publishing companies to adopt the system. Both APN and Fairfax have been hit hard by the dual swords of lower circulation figures and declining ad revenue in the past year—and both have made announcements regarding significant editorial and operational cuts.

Griffin says APN and Fairfax are currently engaged in a game of chicken, each waiting for the other to push the button first to see what happens (and benefit from any exodus in readers). The answer then would be to introduce paywalls at the same time, although this might incur the wrath of the Commerce Commission.

“By early 2014 [APN and Fairfax] need to have paywalls or risk falling further behind … maybe irrecoverably,” says Griffin. “They need to see how much they can technically achieve in a good way by then. The risk is there’s growing scepticism about the worth of paying for online news. There’s a limited appetite so there’s really only one shot.”

No Silver Bullet

While many publishers such as The NBR, Fairfax and APN are looking towards paid digital subscriptions to stay afloat, there’s still some doubt whether even this will be enough.

“Paywalls are not a silver bullet. There’s no magical cure for what the newspaper industry is going through right now,” says Merja Myllylahti, a lecturer at AUT University’s School of Communication, who is researching the topic for her PhD programme.

“If you take a look at The New York Times paywall, which has been hyped [up]as a success story, it only makes roughly 7.2 percent of its total circulation revenue from online subscriptions,” she says.

The Financial Times in the UK was one of the first to introduce paywalls back in 2007. Last year the publication’s digital subscriptions overtook its print circulation for the first time, with around 300,000 online subscriptions, she says. Still, this only accounts for about 13 percent of its annual sales.

“Newspapers can’t survive on the revenues from paywalls alone,” she says.

The paywall proposition for general news content is particularly difficult to sell in markets such as the UK and Australia, where there is a strong public news broadcasting environment providing free alternatives. In New Zealand, TVNZ operates on the broadcast side and Radio New Zealand on the radio front, providing free news content that is unlikely to ever see the back of a paywall.

What could make paywalls more palatable to consumers—and something Griffin also suggests—is a Spotify-like subscription model where consumers use one service to access multiple news sites. Such a system already exists in Europe – Piano Media offers a multi-site subscription for several major news organisations across Slovenia, Slovakia and Poland in return for a 30 percent cut of the revenue.

Myllylahti admits her paywall revenue research is incomplete as the publishers she’s spoken to have been wary of divulging their financial details. She suspects the state of many of them aren’t great, otherwise more would be more open and boastful. However, it could just as easily be a case of not wanting to give competitors an idea of what works and what doesn’t.

Niche works

Vincent Heeringa has been in the magazine industry for the better part of two decades. In the late ‘90s he founded Unlimited, which is now a part of Fairfax and exists only in digital form on stuff.co.nz. And he then went on to co-found Idealog in  2005. Heeringa is now a publisher at Tangible Media, which owns among other things Good, Dish and NZ Marketing, and is part of Image Centre Group. 

Tangible’s biggest online success is StopPress, NZ Marketing’s companion site, which attracted almost 40,000 unique visitors in May, up 51 percent from the same time in 2012. According to Heeringa, the site makes between $300,000 and $400,000 in gross revenue annually, most of which is through banner advertising and sponsorship deals, and with just a few staff on the books, StopPress is capable of fully supporting its editorial and sales team through this revenue, while also bringing in a profit.

“With StopPress we don’t have the legacy infrastructure that weighs down many news organisations. That means we’ve been able to create budgets that are profitable,” says Heeringa.

The veteran publisher admits the online efforts of Tangible’s other publications are not so fortunate and are still dependent on print advertising to subsidise their online costs. And, much like his newspaper counterparts, Heeringa has contemplated paywalls to make the rest of Tangible’s online titles self-sustaining. 

“Our thought on paywalls is it needs to be more than just putting up barriers to existing content,” says Heeringa. “I’m not ashamed to say that we’ve trained people to expect a lot of high quality content for free. That’s our model, that’s what’s been successful for attracting advertisers … Now we need to find where we can add value on top of what we’re already giving away.”

These value-added products include memberships to communities built around the niches each publication operates in. A fishing magazine, for instance, might have a bi-monthly magazine, but would also hold regular fishing events and exhibitions as revenue earners in between. Heeringa says the move is away from having the magazines or websites at the centre of the business, instead giving that honour to the communities they help foster.

“An area of excitement for me is I don’t see digital in isolation from the rest of our brands. The digital experience is just one of the offerings in our multi-channel experience, which is no longer just about print and digital, but also about events and communities,” he says.  “That’s going to be the future for our magazines … For all magazines.”

Entrepreneurial journalism

The future of the news industry may not be in the hands of newspapers at all. The print-led momentum of the APNs and Fairfaxes of the world means it could take several years before they change course—and in that time smaller players are divvying up the spoils.

Griffin says it’s not all doom and gloom for the business of news media, and the smart and the agile will rise above the rest. 

“There’s still an appetite for good quality journalism and content, even with some brands in distress there are writers and journalists who people look towards because they trust them. The sharp media and business people will look for the opportunities in all of this and they’re going to be the future,” he says. “This is a golden age for small media companies that are really motivated, lean and have a clearly defined niche. It’s a good time for the Regan Cunliffes [founder of TV blog Throng]and Interest.co.nzs of New Zealand.”

The key is to leverage the small but highly engaged audiences that their niches bring, but with a small and highly engaged team. 

“Smaller, entrepreneurial media companies are looking for new ways to be sustainable. Underlying this is key sponsorships in the form of native advertising and advertorial-type content. The trend is towards tighter relationships with sponsors,” he says.

That business model is working for Interest.co.nz’s publisher David Chaston, who categorises his revenue into what he calls “traditional advertising” (often coming through agencies) and sponsorships sourced directly with brands.

Chaston founded Interest.co.nz in 1999 as a interest rate comparison site, but it only really took off in 2004 when it became his full-time job and a much more rounded business news website. It’s a lean ship: four journalists and four analysts work out of Herne Bay in Auckland. He says the traditional agency-driven advertising model is broken for online news sites. Overseas ad networks, namely Google and Facebook, have destroyed the ad market and created a race to the bottom based on cost-per-thousand impression metrics.

“We’re all being screwed by the international pricing mechanism. Google and Facebook don’t care. All our potential clients now understand what they can get from Google and Facebook and try to apply the same standards to us. That just doesn’t work.”

Where he can, Chaston offers sponsors a time-based price. Due to the nature of the financial transactions sponsors have with readers, Chaston isn’t party to the conversion rates Interest.co.nz provides, but he argues that they keep coming back and his site is profitable and able to support a newsroom, so something must be going right. 

Data is another weapon in Interest.co.nz’s arsenal. Nothing quite as scary as user information, assures Chaston. Instead convenience information on market rates and other financial data gathered by the analysts that work for site. It’s not enough for the company to run on solely, but it does provide a not insignificant bump to its bottom line.

Chaston has thought long and hard about paywalls but says at this point it doesn’t make economic sense for the site to risk a drop in readership (in May, it clocked in with 9,600 average daily unique browsers). 

“News sites with a larger audience might be able to afford going from five million page impressions to four million, but we can’t risk going from one million to something in the hundreds of thousands,” he says.

Going up, going down 

According to the latest IAB survey, New Zealand’s total online ad spend was up 26 percent to $99.2 million in the first quarter of this year. It is still dominated by search and directories (41 percent), followed by classifieds (31 percent) and display (25 percent). This means total online display revenue is around $25 million, and online video, which IAB predicts will double in the next four years, is also included in this figure. 

Tourism & accommodation and the finance sector are the biggest spenders on display ads, accounting for 15 percent and 12 percent respectively.

IAB forecasts a 12 percent growth in interactive ad revenue each year for the next two years, reaching $510 million by 2015. This is a much more aggressive position than PwC’s independent research, which has online ad spend reaching $543 by 2017. IAB predicts that by 2016 online ad revenue will overtake newspaper advertising revenue. 

On the ASX, APN shares have fallen 90 percent since 2007, from over $A5.20 to $A0.53. At Fairfax, shares on the ASX sit at around $A0.51, down from over $A4 five years ago.

Holy tablets

Tablet ownership is rising swiftly in most developed nations and the shiny rectangles are being hailed as something of saviour by the magazine industry. But few local publishers have ventured into this space, let alone thrived. 

Mindfood, which is increasingly focused on the overseas market, is one of the biggest success stories, with its app chosen by Apple as one of the best of 2012. A digital subscription sells for $30 and single issues sell for $6.49 and back in January publisher Michael McHugh said “we’re way, way ahead of budget, so it’s a really nice surprise from a financial point of view”.

He says apps are often a way to get readers to pay for digital content, whereas magazine websites are likely to be funded through advertising. But it’s not as simple as uploading a few PDFs, copying and pasting a few links and sending it to the App store. Appropriate training was brought in for the design staff and it takes four extra days to design each issue.  

“We didn’t just want to replicate the printed page. And I think that’s where a lot of the publishers go wrong,” he says. 

OHbaby launched its Newsstand app for iOS in March. Previously, the parenting publication had a Zinio version, but with the iPhone and iPad apps, it is able to introduce interactive elements, such as animations and video—both editorially and for advertisements.

It has been downloaded over 4,000 times, with around 90 percent of them from New Zealand. About one quarter are already print subscribers. To make the app version more attractive, it has also created a new subscription tier, which gives a discount for those subscribing to both print and digital and acts as a buffer against cannibalisation of print readers.

“We wanted to make both products attractive for readers, while retaining the value of print, which is where most of our advertising comes from,” says managing director Angela Pedersen. 

Elsewhere, Bauer’s North & South iPad app was one of the first to launch in this market, but it has since been left to flounder; APN embraced the ‘freemium’ model with a new responsive design website for the NZ Listener that combines free and paid content and enables subscribers to read the magazine on any device; and NZ Rugby World launched its iPad app in May, with around 30 percent of its over 4,000 downloads coming from overseas. 

  • This article originally appeared in the July/August edition of NZ Marketing.

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