If media companies are giving away newspapers for free, can they really charge for them online? Kohler

The debate about paywalls and whether to charge for online journalism took an interesting turn this week when John Fairfax was accused of not charging for newspapers.

Actually we all know newspaper publishers give away lots of copies: we pick them up all the time. It’s just that The Age is now being investigated by the Audit Bureau of Circulations for allegedly giving away rather a lot – 40,000 copies a day to schools, or nearly 25% of circulation.

Crikey this week published a 2007 internal email headed “Sensitive Information” that suggested The Age was overcharging advertisers as much as 20%, and warned of “significant risk” to the business if it got out. Fairfax is furiously denying the story, saying it was a 2007 scenario that was not adopted by management.

The ABC will presumably sort this out, and meanwhile advertisers are demanding that any loopholes in the rules be closed.

The underlying problem is that the cover prices of Australia’s newspapers are too high. The Age is $1.50, but the Boston Globe is $1 and the Miami Herald is 50 cents. Even after a 33% subscription discount, The Age is more expensive than most American newspapers – and circulations in the US are in freefall.

But the internet, which is where the readers are going, is a profit wasteland for the publishers.

According to research this week by CCZ Equities, Australia’s broadsheet newspapers are charging up to 9 cents per reader for advertisements compared to 0.25c per online reader (based on the cost of a full-page ad in a metropolitan broadsheet versus an ad on the home page of its website, and using Roy Morgan newspaper readership data and Nielsen’s “unique browser” figures for the website).

Even if you use a half-page ad instead, it still means that the collapse in advertising rates in the transition from print to online is much greater than previously thought.

A newspaper reader is worth around 20 times the value of an online reader just in advertising. If the cover price is included it’s more than 100 times.

Publishers are therefore caught in an exquisite dilemma: they will have to discount the cover price to maintain newspaper circulation and ad revenue; but the more they do that, the more they devalue the content and make it harder to ever charge a “cover price” online.

Actually, charging a subscription for online content is perfectly feasible – lots of publishers do it. It just has to be a lot better and more valuable than what’s being given away now, and is contained in the newspapers.

It’s a bit like bottled water: the price is for the packaging not for what’s inside, but now taps have been invented and ‘water’ is free. To extend the metaphor, the only way to keep charging for the water content is to add vitamins.

However newspaper companies have been cutting costs, not investing in more valuable journalism, and are likely to do more of that as they cut cover prices and give papers away in a desperate effort to hold circulation numbers and ad revenue.

If it weren’t for the fact that good journalism is needed in a free society, we’d all be celebrating the death throes of a cartel and laughing at their embarrassments. As it is we despair at the absence of a plan, and a future.

This article first appeared on Business Spectator.

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