Online Economics - 2006 Annual Report

The flip side of profitability online, of course, is that some of the gains are coming at the expense of the traditional print media, which supply the online news sites not only with the content but with investment dollars as well. In other words, the Web sites might be eating the lunch of the old media they are so dependent on, and this is perhaps nowhere more evident than in the alarming number of layoffs at newspapers across the country.

Up to this point, the economic model of traditional media online has been largely dependent on advertising and support from the parent company, with the content offered free as consumers have seemed to resist paying.69

In 2005, there was finally some evidence that the efforts of online newspaper sites to diversify their revenue stream by charging for content might be making headway — at least a little. Indeed, roughly 40% of online newspaper editors and managers expect to charge a subscription fee in the future. In late September 2005, the New York Times started charging readers access to its opinion columns, frequently the most popular features on its site. In mid-November, the Times reported that it had registered 270,000 for the TimesSelect; approximately half of those were new, online-only subscribers. Heading into 2006, though, of the nation’s 1,456 daily newspapers, only one national newspaper, the Wall Street Journal, and approximately 40 small dailies charged their online readers.70

The question of paying for content is critical for several reasons. If online advertising revenue is not likely to catch up to print anytime soon — or at all — the profitability of online journalism, and the resources of the newsrooms that produce it, may depend heavily on whether a second revenue stream can be developed.

And since newspapers on average generate 20% of their revenue from circulation, if the Internet cannot begin to charge, that would represent a major blow to revenues as well. As Colby Atwood, vice president of Borrell Associates Inc. told the New York Times in March, 2005:

“A big part of the motivation for newspapers to charge for their online content is not the revenue it will generate, but the revenue it will save, by slowing the erosion of their print subscriptions.”71