Another Scary Online-Only News Business Plan

Earlier this week, All Things Digital at The Wall Street Journal posted an interesting spreadsheet that tried to answer the question: What would your P&L look like with a 20-person local online-only news site?

Mark Josephson of local content aggregator Outside.in, the author of the spreadsheet, concluded that with very aggressive traffic assumptions, lots of help from third-party sites, and most inventory filled as remnant space by ad networks, you could have a margin of over 40%. Not bad. However, the fact is it’s a pretty small business overall — $6 million in revenue total, and only $1.4 million of that sold locally by a sales staff.

You could argue about some of the assumptions (especially what look like optimistic traffic numbers), but the fact is, Josephson is right. If you are building a local online news business from scratch, and you are only thinking about selling traditional banner inventory as your revenue source, any spreadsheet you do will look much like his.

Here’s the question: If you had a site like the one in the spreadsheet, with 40 million monthly pageviews, that would mean you have to be in a fairly large city (Dallas maybe? the local news site there probably has about this traffic level). If you were in a city that big, with that visible a site, why would you settle for $1.4 million in local ad revenue, when the market of local ad dollars is so much larger? Why have a local sales force, if all they can sell is banners?

Local advertising spending overall is down recently, like everything else. But everyone I’ve spoken to who has tried to sell to local advertisers recently tells me that even now, they are more than willing to try new opportunities if they’re creatively packaged and affordable. They may not want to be in the local metro daily (since it’s probably declining in readership, drab, and overpriced). But they still need to generate customers. They’re willing to try everything from Web ads to local weeklies, coupon books, event sponsorships, e-mail marketing, merchant directories, SEM. If you want a chance at a serious and prosperous local media company, you’ll need more than a busy Web site — you’ll have to build up a much richer range of channels and solutions for advertisers.

The opportunity is there for a local media company to be the authority on how to target customers in that market, via whatever channels local merchants want, whether it’s print, online, event sponsorships, e-mail, or access to a deep and proprietary local marketing database. Not that it’s easy to do, but it’s the only way to get away from the “little business in a huge market” suggested by the Josephson spreadsheet.

Some Sunlight on the Local News Scene

I try to look at every new local news/information site out there – blogs, wikis, newspaper sites. First, because I once thought of starting a business in this area (I still do now and then, but then I lie down and it passes). But second, because so many local news sites are so bad, depending on repurposed, stale newspaper content, sporadic blogs, or hole-ridden databases of local information, stores and vendors. I’m always looking for someone who has taken a fresh look at the problem of creating a genuinely useful local site.

Here’s one that works: Richmond Sunlight. This site consolidates and organizes everything you might want to know about the Virginia State Legislature – not just a news blog, but a database of every single bill on the legislature’s agenda and where it stands, as well as every legislator and his or her activities. You can search for a specific bill, easily find all bills on a particular topic, or get a customized RSS alerting you to every bill a particular legislator sponsors. Of course, there are also ongoing discussions of the merits of particular bills (see this furious exchange on dog tethering). Best of all, it’s all pulled together in a simple, appealing and immediately understandable interface.

What’s the business model? It’s a nonprofit, started by a local blogger but now owned by the Virginia Interfaith Center, staffed (says the site) with volunteers. Does that mean this isn’t relevant to a for-profit local news business? Not at all. Far too many local sites are depending on producing news — as in articles. Instead, they should be trying to build local tools – on local issues, real estate, business, stores, events – that people will depend on for all sorts of business and personal reasons. What’s appealing about this site – a deep and integrated database, exceptional ease of use, and a clear focus – could be part of anyone’s local information business, maybe especially one where you’re trying to make money.

If Users Won’t Pay for News, Someone Else Might

An interesting column by Simon Dumenco at AdAge.com called “How the $0 Netbook Might Just Help Save the Media Industry.” The thesis: To make money on low-margin netbooks, computer makers might have to gin up some bundles of add-on content to sell — perhaps including news and media subscriptions. In the process, they’d help jump-start the idea that said content is actually worth paying for.

I’m a little skeptical about the hardware people getting into this successfully, but it’s a reminder that there are plenty of people who might want to build packages of content, either to sell or to use as incentives for their own marketing. There are always combatants desperately trying to gain market share (Comcast vs. FiOS, Verizon vs. Sprint, Lexis vs. Westlaw, Starbucks vs. McDonald’s) — they need some of the proverbial (and elusive) “added value” to get people to switch. Why shouldn’t premium content (music, news, video) be part of the bait? Would you try using Google Chrome, or use a Verizon wireless data plan instead of Sprint’s, if you got access to premium news and music you’d otherwise have to pay for? If the offer were compelling enough, you might.

This isn’t a new idea. Why, back in 1996 when I worked at wsj.com, we got a big check from Microsoft to give Internet Explorer 3 users free access to the otherwise subscription-only Wall Street Journal (they also got some nice things from ESPN and MTV). Back then, Microsoft was trying to grab share from the then-dominant browser, Netscape. They did. This year (when they can force you to download IE8 in a way they couldn’t in 1996) Microsoft is giving the money to charity instead. The newspapers might need it more – too bad so few of them have come up with interesting services worth charging for.

Enough Opining about Journalism, Let’s Sell Some Stuff

When it comes to the nuts and bolts of selling online subscriptions, who knows more than Marketing Sherpa founder Anne Holland? Here’s Anne’s newest site, www.whichtestwon.com, with some fun quizzes where you can guess which online offer pulled the highest response. Good luck, Anne!

Information Entrepreneurs: I’ve Got the Horse Right Here

Nice piece in the sports section of the New York Times last week about the Daily Racing Form, still thriving as a daily paper at $6/copy, with a growing online business. Think this is a weird anomaly, based on a unique hybrid of sports and gambling, with no lessons for other information companies? I would disagree.

Many people want to build Web news and information businesses these days based on minimal people costs, scraped or user-generated content, and tons of automated technology. That model can work, of course. But there are also still plenty of vertical businesses (based on specific industries, hobbies, etc.) that can be built based more on the unglamorous, often low-tech slog of collecting and packaging specialized news and data, and then charging for it. Take BidClerk.com, a Chicago publisher of construction project opportunities, selling memberships for the market-disrupting price of $50/month. Aggregating all those projects isn’t glamorous work, I’m sure, but it’s information that helps people make money – and therefore, information that they’ll pay for. Just like at the race track.

If ChicagoNow Is the Future of Newspapers, I’m Not Excited Yet

The Chicago Tribune just opened up its ChicagoNow.com site for a very early first look. Over at Recovering Journalist, Mark Potts says it’s “the future.” It’s still a work in progress, I know, but I wish I could get more excited about what’s there so far. Their promotional video says it will be the best of Huffington Post and Facebook rolled into a local package, and clearly they have high hopes that they’ve come up with a new approach to what a local news site can  be.

To me, despite some very attractive design work, so far it’s a low-tech letdown: Some interesting-looking bloggers holding forth on local topics, with a common registration system so you can register once and comment across the entire community.

But can blogs-and-comments, no matter how you package them, really make for a resource that penetrates enough of a local market to matter to advertisers? The promo video suggests there will be a lot more coming over time. I hope so, because until there is I’m not sure how they’re going to build scale.

Journalism Online’s Newspaper Pitch – Where’s the User?

The excellent Neiman Journalism Lab site has a post about the pitch Journalism Online is making to potential news partners who want to start charging for their content – including a copy of the PowerPoint deck they’re using for their presentations. The examples of how much revenue they think newspapers of various sizes could make charging for content seem optimistic, since they assume 5-10% of a current site’s users will pay $60/year for subscription access just to that site. I think the 5%-10% isn’t so unreasonable, over time — but I wonder how many papers really have enough good content to charge that kind of money. New York Times, Washington Post, L.A. Times, yes. What about others? I think they need to be part of a larger Web access plan, or to bundle in enough local benefits for subscribers that they have a decent membership package to offer.

[An aside: Are too many lawyers involved with this project? (Apologies to Gordon Crovitz, my old boss at wsj.com, who is outstanding at realistic business assumptions, but is a lawyer.) I’d rather hear that they’d hired someone who knows about brilliant user e-commerce experience, rather than the world’s greatest litigator.]

Why are people so certain that there’s no possible way paying for news can be made to work? Yes, there are some low-quality papers out there that won’t be able to pull it off, but they’re toast anyway. What’s wrong with trying to charge for a site subscription or membership, and maybe losing some fairly worthless traffic/readers that some publishers are currently generating $1 CPMs from? Many current news Web sites simply aren’t viable businesses the way they are, and their treasured traffic and pageview statistics are no measure of business health. They need some recurring revenue, and Journalism Online is right that if you try hard enough, you can run a decent ad model and a subscription business simultaneously.

My fear is that the piece JO won’t get right is the user experience. (Notice there’s nothing about that in their deck.) Once you buy a news subscription pass, it should do all kinds of things for you without any further friction, and you should never face any confusion about what you get. If this turns out to be like some clunky PayPal purchase every time you see something you want, this will be a flop – not because people won’t pay for stuff, but because it needs to be incredibly easy. I doubt the lawyers will be helping with that part.

OpenID Gets Closer to Real Usability

Until recently I hadn’t been impressed with the so-called “seamlessness” of how OpenID was going to make life easier for actual users trying to register on Web sites. But things may be starting to come together. RPX, for example, has commercialized a very easy OpenID login/registration interface. If you want to see it in action on a live site, go to UserVoice and register. It’s now not so hard to imagine a world where we have one identity and one password, linking not just all our social networks but all the content and commerce sites we have relationships with.

Now let’s use the same open-standard approach to make it easier for one e-commerce relationship to grant us easier access to premium content across sites, without having to make multiple individual subscription purchases.

(And by the way, if you are a connoisseur of elegant registration/purchase screens – you know who you are – UserVoice’s are beautifully designed, well engineered, and short.)

It’s Dumb to Charge for Some Sites, But Brilliant for Others

Once again there’s active talk about some new plans to charge for NYTimes.com:  one model where only heavier users of the site pay for the privilege (as in FT.com’s system), and what is described as a “membership model,” where you’re paying for, well, various as-yet-undefined benefits of being a Times “member,” not just for news.

I am someone who has long thought it’s a little crazy for a fabulous brand like the Times not invent something they can charge for online. But plenty of observers still regard every sign that a newspaper is going to charge for content as a pathetic move that’ll never work. In some cases, that’s clearly true. But there’s an actual chance of success if publications approach the question, not as “How do I start charging for what we’re doing online?”, but instead “What do I have the skills and relationships to put together that is worth money to people?” Deliver enough utility, exclusivity or entertainment, and you’re crazy not to charge for it.

Even this idea of a “membership” isn’t as lame as it sounds. Why not try to build multiple benefits into an annual fee? Yes, there have been plenty of “affinity” programs — even the Times had some useless subscriber “benefit” card a few years ago. But these programs need to go beyond the usual 10%-off-your-second-entree-before-6PM discounts people will never use. Why can’t a local publication put together a package of genuinely valuable privileges — local music, wine tastings, networking, food events, mobile alerts, guides, handbooks — one that would make buying an annual “membership” a no-brainer? Surely there are enough advertisers everywhere right now who are desperate enough for qualified leads that they’d get on board with something innovative.

Putting a subscription wall up in front of a not-very-useful product won’t work. Designing some kind of a package of information and other benefits that delivers enough value that you’d leave it on your credit card, year after year — well, publishers are dumb not to invest in figuring out what that might be.

How About an Amazon Newspaper/Magazine E-commerce Plan?

Seth Godin, who has lots of advice for everyone and sometimes some good stuff, thinks Amazon should come up with a subscription plan for books.

While we’re at it, why shouldn’t Amazon be the central platform for buying subscriptions or one-time purchases of any kind of online content? They already run the world’s best information store – they’d make the buying experience easy, and bundle products/services together if it made sense for buyers. It would get publishers out of the business of running their own expensive, clunky registration, access control and billing platforms. There are plenty of ugly technology issues that would have to be worked out, but not as ugly as the buying process is today for most online information customers.

And I’m not convinced that the Kindle is the only platform they could play this role – why not on the Web too?