Earlier today, I reported on my conversation with Steve Brill and Gordon Crovitz, two entrepreneurs who have captured the attention of the newspaper industry with Journalism Online, their new e-commerce company that proposes to help publishers charge for digital content while preserving ad revenue.
Some aspects of our wide-ranging discussion didn't make it into that piece. For example, Brill and Crovitz were responded to a controversial proposal to amend copyright law to help newspapers, and explained how -- in their view -- Journalism Online allows publishers to act as a herd while skirting anti-trust concerns. Below is our entire interview, more or less. We began by talking about one of the common misconceptions about their venture.
Gordon Crovitz: People somehow get the idea that it's going to be a separate site where all the content will reside.
DailyFinance: Maybe they're confused because it's been compared to a sort of iTunes store of news?
Steve Brill: It is like iTunes in the sense in the sense that you can click and buy something once you've established an account. that's the iTunes analogy. But it's not like iTunes in the sense that it's predominantly micropayments or on the equivalent of Apple's site.
CG: Just to be crystal clear: The consumer's experience is they'll be on somebody's website, or Google, and they'll see our logo with our consumer name. It's more PayPal like. This is the engine that you buy stuff with. If they're already an account holder, it'll be two clicks to have that new access. If they're not, we'll lead them through the process to become a subscriber.
SB: Except that the only difference with something like PayPal is it's much more complicated than a simple payment mechanism because what we're equipping publishers to do is much more complicated. For example, one of the harder things is if you already subscribe to the print version of the Washington Post, the Post might choose to give you a discount to the online version. So they have to mesh their print subscribers with their online subscribers. The Washington Post or the Chicago Tribune might decide to give you five articles free that you come to via Google in a month before they charge, which is what the FT does, or three articles a day, or six articles a week. Anything they want to do like that, they'll be able to do. They might decide they want to let you read the first two paragraphs of anything before the ask you to pay. Or the first two paragraphs of anything and then everything else for free the first five times, and then the sixth time they ask you to pay after the first two paragraphs. A hundred varieties of things like that. So it's not simply an e-commerce engine. There are hundreds of those out there. It's that whole range of options, and with that whole range of options goes an information reporting process for all those things that tells them what's working across the board. So they'll know with regularity, to give you one example, do monthly subscriptions work better than annual subscriptions?
There are that 15 things we'll equip publishers to to choose from and do. They can combine them or ignore some of them and we'll be advising them on what we think the best model is. In no case is it simply we're charging or we're not charging. It's not simply a pay wall goes up around everything. Our premise is you can keep your advertising revenue while gaining significant circulation revenue.
DF: When you say 15 different things, that would be, for instance, micropayments...
SB: Bundling print and online, day passes...
GC: Taking someone who's a micropayment person to a monthly and credit their account. Charge by the timeliness of access. There are some websites that a lot of the value is in the real-time nature of it. Charge a different amount for someone who's accessing it less frequently versus more frequently. We think there's an endless [combination] of the 15 core marketing approaches, which is something we dreamed up.
SB: In theory you could almost take the 15 and square them.
GC: The important thing to keep in mind is the relationship will be between each publisher and its subscribers. Do each publisher is going to have a different value proposition. It might be, here's a certain set of content which you have to be a subscriber to get. Or it might be the timeliness of the access. For that decision by a subscriber, it's going to depend on the brand.
SB: There are sort of two things going on at once. First of all, one single publisher is unlikely to say let's have a daily, weekly, monthly and annual subscription, because then they're putting four choices in front of people, and that's more confusing than two choices. But you want ten different publishers to have the choice of choosing among those four for the one or two they might offer a customer.
If you're trying to build a whole new business model and you can use the technology to give yourself maximum flexibility, it seems to me that when we launch in the fall, you're going to want to see lots of publishers trying lots of different things, and then as it shakes out and as we provide them the information about what's working and what's not working, a year from now, for example, the verdict could be in and everyone would say monthly subscriptions work much better than annual subscriptions. If everybody sees that, it's not like there's going to be some religious devotion to annual subscriptions. Everybody will be doing monthly subscriptions.
So if you pick the 15 things we're doing and say, all right, in a year or two years, how many of those will still be out there being used? Maybe four or five of them.
GC: And it may depend brand to brand. The Wall Street Journal Online went through a number of different models. There were not 15 to choose from because the Journal's e-commerce engine wasn't as robust as what we're building, but at one time you could read zero articles through Google, and then it became five, and then it became based on how many you'd read in the previous few months. It got more and more focused on the people who were closer to the decision to subscribe. You learn by watching the data, and for our affiliates, as Steve says, we'll have a lot of data about what's working. And we'll share that data with our affiliates to make their marketing more effective.
DF: What kind of data do you have going in? Are you getting cooperation from the Journal or FT or anybody who's experimented with this?
SB: We are, but we don't want to talk about specific folks that we're getting cooperation from.
GC: We have a lot of access to data on what's working now, what's worked in the past. We have research that we're doing. There's some third-party research that's being done, and our affiliates are doing research of their own as well. There's a lot of focus in the industry now on paid content and what the right mix of marketing offers is. And I think it's fair to say almost all of our affiliates are thinking about the hybrid or freemium model where there'll still be a lot of people who are accessing services or content for free. But, as we've described it, the most active 10 percent of online visitors for each brand -- on average, the 10 percent seem like the ones who'll be likely to subscribe. And if you take 10 percent of the unique audience for a lot of news sites and you put a reasonable price against that, you get to very significant revenues.
DF: When will you be able to talk about who your affiliates are?
SB: We keep going around on that. We're adding significant ones now every week. I think we've pretty much reached a consensus that sometime between the middle and the end of this month we're going to talk about who our first affiliates are. Isn't that probable?
SB: Here's the thing: We think we're close to getting a signature from someone on a given day, so we say, Let's wait for that one, and then someone else pops up.
GC: At this stage we're confident we're going to have a significant number of news brands participating when we launch in the fall.
SB: And not just from the United States. Globally.
DF: Have publishers from overseas been coming to you or are you reaching out to them?
SB: Both. We're laughing because there's one very significant one that we didn't go but came to us very eagerly, and when we finished the first conversation, we looked at each other and said, "We're supposed to be so smart. Why didn't we call them?"
GC: To give you a little more color, within the space of two days we were contacted by four major publishers from a country not in the United States who basically said, "What about us?"
SB: And we said, Sorry. Are we idiots? We both think we're pretty smart about this. So we pulled out the list of the top 20 or top 30 newspapers [by unique visitors] in the world and these four were on that list.
GC: And just to be clear, we're talking to newspapers, magazines and a lot of online sites. A lot of the focus has been on newspapers because they're in the most dire economic situation, but our engine works for any digital property, and I imagine there'll be quite a few online-only publishers who participate with us.
DF: I was wondering about TV network websites, because CNN.com and MSNBC.com are two of the top news destinations. Are you talking to them?
GC: Just to be fair to everybody, we can't acknowledge any particular ones, but we are talking to ones like those. And you could imagine a somewhat different value proposition for almost every brand, including those brands. It's a little bit different if you're creating original content than if you're chiefly aggregating. The value proposition to the user is different.
DF: I would think based on the currency this idea has that you're not getting a lot of straight-up rejections from potential affiliates, that, at the most, they'd say "Let's wait and see how this plays out." Has anyone flatly said, "No, we're not interested"?
SB: Not at all. In fact the harshest answer hasn't even been, "No, let's wait." The harshest answer has been "Let's get together and talk." Their decision-making process is not as fast as ours, so we're trying to figure out how to ration our time.
GC: And just to be clear, the issue is a lot for publishers are thinking through what would their model be, what would they charge through, how much would they charge. So some of them are trying to think through that issue before engaging with us on the commerce side. We don't think there are any other providers on the commerce side that people would work with, but some publishers are trying to get to a clearer view of their business model before they formally engage with us.
SB: And our response to that goes back to our 15 variables. If you're going to do anything, you're going to need this. What you're really saying to us is maybe you haven't even though of it in terms of these 15 variables, but let us work with you on that, because that's what we do. That's how we move those discussions along.
But the short answer is when we announced we were doing this the second week of April -- which seems like a couple years ago -- if, that day, you had called the 10 largest newspaper and magazine publishers in the country and said, "Are you going to charge for any of your online content in the foreseeable future?" you would've gotten a significant amount of "I don't know." Today, I think all of them would say "We expect sometime, at some point, that we're going to be charging for some portion of our online content. We don't know how much, we don't know how we're going to charge, but yes, we're going to do something." The debate has really shifted, and not so much because we're so persuasive and wonderful, but because the economic ground is really constantly shifting under their feet.
GC: And the more people look into the issue, the more then understand they can have their cake and eat it, too. They can have robust online advertising revenues, or at least be able to meet the demand of advertisers, while generating a second important revenue stream. And as we work with affiliates, one of the services we're providing is to make sure they're aware of all the different tools at their disposal for how to charge. And for a lot of our affiliates, that's a very iterative process where we work with them as they think through what their approach to the market might be.
SB: The real progress we've made has been in explaining to people...It's not just the economic ground for print has shifted but what they now think they can expect from online advertising has shifted pretty dramatically. So if you say to a publisher, If you maintain 90 percent of your pageviews, 90 percent of your current traffic but you charge and create an online circulation revenue stream, it can't be possible that the 10 percent of the traffic, ie. the 10 percent of the ad inventory you're giving up, accounts for even 10 percent of your advertising, because the last inventory that you sell is typically remnant space which is very low cpm. So if at the worst you're giving up 10 percent of your ad revenue, you'll make it up with your online circulation revenue. It's not a matter of saying -- and this was the conversation we were having at the beginning of the year -- "Well, gee, I have $5 million a year in online advertising. How do I know I'm going to make $5 million a year in circulation revenue?" That's not the tradeoff. You don't go to zero on your advertising revenue, and our proposition is you don't even necessarily go to 90 percent. You don't even lose 10 percent of it if you do it right.
GC: In fact, Rob Grimshaw, who's the head of FT.com, he's indicated that when they went from the fully free model to this hybrid model similar to what we're describing, their ad revenues actually went up, and the reason they went up is advertisers are very happy to pay a big premium to reach people who've paid to get access to a site.
SB: So that's really how the conversation has shifted. And as a general matter, the folks we're talking to have said, Okay, that model looks intriguing. Let's go ahead and get into the nitty-gritty of it, let's experiment with it. Because what we're also telling them is we're giving them is a set of dials they can constantly turn. So if their ad inventory suddenly becomes more valuable, or a certain kind of it does, they can increase the traffic maybe by not charging for it, or by charging for it after six samples rather than three samples. Conversely, if their ad revenue becomes less valuable, ie. they're putting less at risk, they can turn the dial the other way and ask for payment sooner rather than later.
DF: How important is it to get mass here -- to get a large number of affiliates all to come in at the same time?
GC: That's another one of the ideas that I think was weighing on people until they thought about it. So, let's take a local newspaper somewhere in the world. For a lot of local newspapers, their website is by far the dominant source of news. They have distinctive, unique information that can't be accessed any other way. So, for them, there is no alternative source. And I think as news publishers think through what can they charge for, they're all focused on what do they do that's different, whether it's content or a service or some package of content and services. Something that brand stands for uniquely -- that's the likeliest theme for them being able to charge.
SB: If you're the newspaper in Sioux Falls, at least in that community, you are the critical mass. Once you say it to people, they say, yeah, that makes sense. And in fact, if you look at the newspapers that have been charing for their online content for some time, and the ones in the U.S. have been doing it it's a strict either-or proposition where you hit a pay wall from the very beginning -- papers Little Rock, Great Falls, Idaho, Albuquerque -- and they've succeeded in keeping their readership.
And this is the probably the most important and non-intuitive takeaway from this conversation: This is as much as or more about preserving your print franchise as it is about helping your online franchise. Newspapers that have done this have increased their print circulation, for two reasons. One is they typically bundle a print and online subscription. So they offer a discount on the online subscription if you buy a print subscription. So they're able to offer something to get people to renew or buy a print subscription. So that has enhanced their ability to maintain and add subscribers.
And second is just the whole idea of the value proposition: you can't keep charging for something if I get it this way when over here you're giving it to me for free. Sooner or later I'm going to say, I'll take it for free. Why should I buy it?
GC: The immediate benefit to print publishers is the value back to print in terms of pricing power and reduced marketing expense to obtain or acquire a new print subscriber. And, over time, as subscriber revenue from the web increases, that can become a really significant source of profit.
SB: And I'll give you an example of that from the old world. One of the legal newspapers that I owned way back when was the Texas Lawyer. And we had this brilliant idea when we took it over to increase circulation. It came out weekly. We would send a free sample to half of the lawyers in Texas who didn't subscriber every other week to try to get them to subscribe. And it just never worked and never worked, and our renewal rates on people who did subscribe started going down. When we cut off the free samples, our paid circulation went up. Why? Because first of all, people didn't know it was weekly, they thought it must be every other week, and they're getting it, so why should they buy it? And the people who were getting it so that the guy in the next office is getting it for free, so you feel like a schmuck, so you stop paying for it. So take that dynamic and think about The New York Times which went from $1.75 to $2.00 and trying to get my daughter, who's 25 years old and very happy to read online -- how are they ever going to get her to buy it if they keep raising the price in print and keep, ironically, improving what is already a fabulous online site that is free?
DF: I know anti-trust concerns were raised over a recent meeting of newspaper executives in Chicago where you presented on Journalism Online. What are you doing to make sure you don't cross that line?
GC: We think we're the solution to that problem in the sense that our business model is that each publisher will set their own terms and conditions, their own prices, what access is paid, not paid. So in a way it takes the antitrust issue off the table because we're a third-party. We're not a publisher. And our business strategy is that each publisher sets their own terms and conditions.
SB: And they're not making group decisions. You asked us who our affiliates are, and at some point we'll announce it publicly. But every newspaper asks us who our affiliates are. We don't want to be in the situation, except in a public announcement, of telling newspaper A who thinks he competes against newspaper B, "Well, they're already doing it so you should do it too."
I'm the one who went to that meeting. I was a little leery of that meeting and still am. We'd not make a habit of doing lots of meetings like that with big groups of publishers. Luckily, we'd already talked individually to almost everybody in the room. There were a couple questions in the room about pricing models and things like that, and I just didn't answer them.
DF: So when you say you won't tell a potential affiliate who your affiliates already are, is that because of...
SB: It's not even close to being a problem in terms of what the real antitrust law is, but it's sort of starting the way down the road. It would be a problem if there were three newspapers in a town and two of them had signed up with us and said, We're about to charge, and if I then told the third one, Well, these guys are already doing it, why aren't you? That would be a problem. But we're not close to that. But the sad thing is there aren't three newspapers in town.
What publishers are seeking, it can be misconstrued as an antitrust issue, but I think they're seeking is more sort of psychic comfort than the kind of comfort that violating the Sherman Act give you. They just don't want to be the first to do something. They want to have comfort that there are other people making this experiment at the same time.
DF: I also wanted to ask you about this discussion that's cropped up in the last week or two about changing copyright law to favor newspapers more.
SB: It's Richard Posner's [idea].
GC: I think one of the misconceptions about how the web operates now is that search engines, which are really the main focus of the copyright topic, are the problem. Search engines are actually of huge benefit to publishers that have some element of a paid model. Google's mission is very clear: They want to present as much of the world's information as they can. They're very happy with news publishers that have a paid model to index all the content, to surface it, to abide by publisher rules about how many articles a person can see over the course of a month or a week or whatever rule set a publisher puts in place. So for publishers that have a paid model search engines or aggregators become in effect a sales agent.
SB: I was kind of brought up by Richard Posner. He's a really smart guy and a good writer. He's a conservative judge on the court of appeals in Chicago--
GC: He'd refer to himself as a utilitarian.
SB: And he'd be right. And I fear disagreeing with him because he's so smart about most things, but if he's thinking about the search engine idea, you don't need to change the copyright law because Google is the first to say if you want to block our search, you can block it, or if you want to charge people money when they come to you through a Google search, you can do that. If what he was referring to was the habit of places like the Huffington Post to take your article and just rewrite it, just change the sentences around and rewrite it, I think there's pretty good copyright protection against that as it is, and maybe if what he's suggesting is you clarify that so it's more clear, I think it's a great thing.
GC: In any case, news publishers don't have the luxury of time to wait for Congress to do anything. And there's a lot of low-hanging fruit for publishers to pursue in the meantime through a paid model.
Q&A: Steve Brill and Gordon Crovitz of Journalism Online