SF Chronicle may charge for online content

Drastic times call for drastic measures. Or in the case of The San Francisco Chronicle - just practical ones.

The Hearst Corp, which last week said it would slash costs and possibly try to sell the San Francisco Chronicle, says it's going to start charging for some content.

It's moving to what I consider to be the dark side of online publishing - charging! In the online world, there's been a war between paid and free, akin to a war between good and evil. The good side doesn't charge (my  former employer for many years - MarketWatch - never charged for content, so I consider "free" the good side). The bad side does (MarketWatch's competitor, TheStreet.com, banked on a subscription model).

“Exactly how much paid content to hold back from our free sites will be a judgment call made daily by our management, whose mission should be to run the best free Web sites in our markets without compromising our ability to get a fair price from consumers for the expensive, unique reporting and writing that we produce each day,” said Steven Swartz, the president of Hearst newspapers, in a memo that was obtained by the Wall Street Journal.

This is a good sign that the paper is trying to do what it can to maintain its online presence. While I'm inclined to favor the "free" model, I believe that many publishers should put a price tag on their valuable content. When the Atlantic Monthly charged a subscription, I signed up. When The New York Times charged for subscription fees for its columnists, I signed up.

But The Atlantic Monthly stopped charging at the start of 2008, and the New York Times stopped charging subscription fees for its archives and columns in 2007, leaving the Wall Street Journal the only paper with a hybrid model of paid and free.

Was it a smart move by The Times to drop subscriptions and embrace "free"? Not exactly. In the fourth quarter of last year, The Times reported a 48% drop in profits from the same period a year ago. 

The New York Times generated between $150 to $170 million, as estimated by Silicon Alley Insider. This compares to The Wall Street Journal, however, which generated $120 million in online advertising last year, even though a lot of its content is also behind a subscription wall. Combine the Journal's two revenue streams, and it's a much more viable business than The Times (if SIA's estimate is accurate).

To this end, putting content behind a subscription wall is a clever move.

The problem with the Chronicle, however, is that a lot of its content is licensed, like this recent one on Bernie Madoff, which is written by an Associated Press writer. If the Chronicle wants to charge, it better make sure that it has "a lot" of original content to draw in the reader. If not, why bother paying for the content when much of it is accessible elsewhere online? The Wall Street Journal can charge because all of the content is unique and original. And, when you pay for online access, you also get the paper version (which is nice since the Kindle hasn't exactly replaced newspapers just yet!). 

I don't think the Chronicle can survive on a hybrid model of unique and licensed content and a business model of subscriptions. Unless, of course, the original content is so compelling and unique that users won't be able to easily find it elsewhere.

But that's yet to be seen.

Here's the full memo from the Chronicle. 

Dear Colleague:

We are at the halfway point in our “100 Days of Change” program and I want to share with you the progress that we’ve made on ideas that fundamentally change the way we do business. Many of you have taken the time to write to me or to the various task force leaders with your thoughts and suggestions, and I’m extremely pleased by the level of energy and cooperation I’ve seen across our newspaper company.

One inescapable conclusion of our study is that our cost base is significantly out of line with the revenue available in our business today. It is equally inescapable that during good times our industry developed business practices that were at best inefficient. For example, all newspapers look pretty much alike, and yet they are not similar enough to allow for efficient production or common content sharing. This must and will change. Another example is that while we have a tremendous opportunity to continue growing our advertising business with small customers, we cannot afford to do so by calling on every advertiser in person every other week and then having a team of artists build and rebuild their ads. We must and will learn to use outbound telemarketing and self-service ad platforms more effectively. I’m confident we can move to rationalize our costs without impairing our ability to give our readers and advertisers the best news and information products in our markets. Even with the cost reductions we are making we have far more resources devoted to reporting local news and information than any other local media outlet. Thus, each of our management teams is at work to complete a fundamental restructuring so we can turn our full attention to product innovation and revenue growth.

Next, we have a revenue and business model problem as opposed to an audience problem. Yes, it is true that fewer people read a newspaper on any given day today than they did in the past, but with the proliferation of media options, consumption of individual media types isn’t what it once was and probably never will be again. Our audience is still the largest of any local news and information media outlet. And when combined with newspapers’ Internet audience, our audience has actually been growing in recent years while our revenue has been declining. So it is our business model that must change in several ways.

We believe we must begin to provide greater differentiation between the content of our free Web sites and the content of our paid product, be that paid product read in print, on a digital device like Amazon’s Kindle, or online. This doesn’t mean we wall off our Web sites behind a paid barrier. Our sites must continue to be the superior and dominant free Web sites in their markets. This means they must offer the best in breaking news, staff and reader blogs, community databases and photo galleries. In fact, we need to expand the number of reporters, editors and photographers who are running a truly great blog, creating a rich dialogue of opinion and data sharing. We must do a far better job of reaching out to prominent citizens in our communities, those who already have a blog and those who don’t, and providing them a prominent platform to state their views. We must develop a rich network of correspondents to help us grow the deepest hyper-local community microsites in our markets. We must do a better job of linking to other great sources of content in our communities. And we must put staff resources behind building those channels of interest that have the greatest potential: those built around pro sports teams, moms and high school sports, to name a few. Exactly how much paid content to hold back from our free sites will be a judgment call made daily by our management, whose mission should be to run the best free Web sites in our markets without compromising our ability to get a fair price from consumers for the expensive, unique reporting and writing that we produce each day.

We must continue to ask readers to pay more for their subscriptions. Our print subscribers don’t pay us enough today that we can say they are actually paying for content. Rather, we only ask readers to pay for a portion of the cost of printing the paper on newsprint and delivering it to the reader’s doorstep. We must gradually, but persistently, change this practice. We ask our readers to pay for their subscriptions on the Kindle today, and we must begin doing the same thing on the iPhone and other advanced smart phones and reading devices that allow us to create a user experience worth paying for. We also need to make our paid product available through the Internet for those who prefer to read it that way. And we must innovate to constantly enhance the reading and advertising experience on these platforms.

Our sales forces must make a transformation similar in scope to the one that IBM underwent in the 90s when it went from a mainframe selling culture to a strategy of being true IT consultants to their clients, even selling them non-IBM products when warranted. In our case, we must fully make the leap from simply selling pages to selling audiences, and in doing so be able to sell packages of products, some of which won’t be our own. The best of our Hearst Newspapers colleagues are already doing this, combining our offerings with those of Yahoo!, Google, MSN, AOL, Ask.com Yahoo! HotJobs and Zillow and networks of local Web sites that we have assembled. All of these products are in our portfolio today. Our advertising task force has created a three-month course of transformational instruction built around a massive sales contest that each of your markets either has launched or is launching. I’m confident that most of our reps will emerge from this process set on a path to become topflight, consultative sellers of audience.

One final overarching thought emerges from our look at advertising sales: we must use third-party printers in all of our markets in order to significantly add more color to our products, not so much for our readers’ needs, but to be more competitive in the battle for advertising dollars in a high-definition world.

Finally, while our savviest advertising customers know that our products still work well for them, as do our most passionate readers, we have done a poor job of telling our story. This becomes even more important as we change our business model. Our communications task force has developed a wonderful new campaign that begins to put us back where we should be—on the offensive about the vital role we play in the politics, social lives and commerce of our communities. We’ll have samples of the campaign available next week on 100DaysofChange.com.

Please discuss these ideas with your colleagues, your managers, our customers and our readers, and let us know what you think. Our goal is to emerge from the “100 Days” with a cost structure we can build our future on and a business model that seeks, by 2011, to get more than 50 percent of our revenue from circulation revenue and digital advertising sales—two areas of our business that we know we can grow and grow consistently as this recession subsides.

I know these are difficult times for those in businesses like ours that are buffeted by so many forces. Yet I know that we have the wherewithal to emerge from this recession with a changed business, yes, but one that is back on a path of growth. Thank you again for your commitment to see us through this journey.

Best regards,

Steve

(Image source: farm4.static.flickr.com)