Giving away content online is not the problem, giving away advertising is

This post by Paul Robinson on The Vagueware Blog should be mandatory reading. I think he hits quite a few nails on the head.

Firstly about news organisations looking to blame everyone but themselves for their current predicament. They need to radically restructure their organisations – every department, every process.

Secondly by saying that it’s not giving away content online that’s the problem, it’s giving away advertising that’s undermining news online.

Thirdly by stressing how important it is to focus on how online works and build news businesses around that reality rather than trying to squeeze old news structures online like square pegs into round holes.

Fourthly by scoffing at how some news executives are setting their hopes on the Kindle or something like it restoring subscription models and being the future of newspapers. It won’t and it isn’t.

Here’s an excerpt.

When you buy a newspaper (if you still do), your money is not to pay the wages of the staff who produced the paper – the money is to offset distribution costs mostly. The printing, shipping and selling of newspapers is an inconvenient but necessary cost and in order to keep everybody from the newsagent all the way through to the inky-fingered man who produced the paper happy, you pay your pennies for the finished article.

The main source of income always has been and always will be, the advertising. In case you’re wondering, it’s the same story in the magazine industry.

Now, let’s move things online.The distribution costs of a website are tiny compared to that of a physical newspaper. If you were to choose the comparatively costly hosting services of Amazon’s EC2 cloud resource, and had 10 small server instances running and were fortunate enough to be shifting a few hundred gigabytes of data a day, your total costs would be less than $60 a day. That’s about £40. Compare that to the £650m needed for the printing presses of the modern paper editions.

Therefore if distribution costs are near enough to zero for online editions, why bother asking the customer to pay for them? It’s almost sound logic, except they then made a major, major error.

They gave the advertising away for free.

Phone any regional newspaper title in the country and speak to their ad sales team. The conversation will result in them offering you a rate card for the print edition. Sound sceptical about the costs and benefits. They will offer space online for free. Every time. I know, because I’ve spoken to quite a few ad sales teams in the last year.

In essence to secure the advertising for the print edition, they have in the past completely undermined the business they need to survive in the future. They have told every one of their advertisers that online adverts are not worth paying for.

Let’s move forward and look at the state of business affairs within the news sector today.

All of a sudden, as if by magic, the clouds have moved apart and revealed that their website is a cost-centre. In order to keep up with the Jones’ they have had to build dedicated online news teams, larger server infrastructures, bring programmers onto the staff and throw money at their website in order to remain attractive to shareholders and other investors. Slowly the ad sales team realise that in fact the future of their business is online and they start to unpick their years of collective suicide, slowly trying to build up the revenues they have worked so hard to destroy.

Ouch. Here’s a few bullet points that come up later in the post.

• Online news is not the one-way broadcast medium you’re used to. Use your audience. Wikinews is cheap to produce. Your newspaper could be.
• Online ads are not the same as print ads and can’t be sold in the same way. I don’t know of a single news website in the UK where I can buy PPC ads with my credit card right now.
• Even worse, online ads aren’t very profitable anyway. Google ads work because they enhance the product. How do you make money whilst enhancing your own content? Price comparison, auction and digital distribution models have figured this out well.
• Customers do not want to pay for anything. Ever. You have to work hard to convince them it’s worthwhile. You’re doing an awful job of that, so stop trying to do it
• Invest in journalists, programmers, graphic designers, information visualisation specialists and people who understand online content. Fire the majority of your middle management who aren’t directly involved in producing content or ad sales.
• People will always value investigative journalism
• Think laterally about revenue in an online medium

Read the rest of the post here.