The case for an industry charging and distribution model

So online pricing is now a major agenda item for the UK newspaper industry. Some believe in
it. Some don’t. But before you rush to your own conclusions, international experience
suggests that......

• The digital market is much like the print market. You will only achieve efficient,
effective business models by working together in a competitive partnership that realise
synergies.

• Just as Menzies’ and Smith’s provide an efficient way of distributing newspapers, to

identifiable outlets, with good reporting systems, so in online, the news industry is
only going to work in the paid for space with an equivalent, industry-led partnership.

• Microsoft ain’t it, and nor is Google.

1. The goal.

UK newspapers must be able to maximise their range of audiences, and revenue

opportunities. It is vital that audiences continue to come from as wide a range of sources as
possible.

2. The why?

Newspaper readers whether in print or digital are too fickle. Daily online audience figures
reveal that digital visitors are still a fraction of the print audience, and their time spent, and
pages read, are thin and economically unviable.

UK newspaper readers are particularly volatile. And the most disloyal, brand agnostic
newspaper readers are the richest ones; those most valued to advertisers.

Matt Brittin, head of UK content at Google pointed out “Economically it's not a big part of
how we generate revenue.” Microsoft’s head of UK news, has strong credentials, but the UK
newspaper industry is simply too small relative to these titans to establish a strong negotiating
position. Microsoft with command of 90% of the UK PC market are uncontrolled.
Newspapers with a collective 10% of the UK communications market are being strangled by
regulation.

As long as Google or Microsoft is in control, publishers will neither enjoy the freedom to
charge what they deserve, nor be able to compete as they should.

Attempts by individual newspapers to align themselves to either a single online titan, or

establish an independent charging system, will be counter-productive to the publisher,
diluting in terms of the interim econometrics of audience and communication revenues, and
ultimately will drive the industry down in market control and value.
3. The How?

The answer lies in the creation of a pan-industry solution that manages distribution,
marketing, aggregation, charging, and price elasticity, while enabling competition and a free
market between each publisher. In addition a publisher-driven project, could act as a “curator”
attract other partners such as magazines, trade publishers, books, academia, etc, maximising
both the appeal of the service, and profitability.

Let’s examine each of these points:

Distribution

The UK press already has an effective central set of resources in the NLA and PA. It would
be a relatively simply exercise, to expand their remit, to the provision of title branded content,
within a central search process. The NLA also offers sophisticated indexing, which can be
used to provide far more granulated search, than is available in current search engines. This
would enable the currently volatile users of newspaper online services to undertake granulated
searches of their specific interests, such as “David Beckham” “Global warming” “Goldman
bonuses”, by source. While few individual newspapers’ general content services can demand
a charge, the aggregated facility could be of considerable value, particularly if it includes
other third party content. See charging below.

Marketing

Marketing presumes that all the current search engines continue to co-operate – this can not
be guaranteed. Against the regularly propounded argument that Google are stealing
publishers’ lunch, is a reverse prediction, that in five years time, Google will come back and
demand a payment for the advertising revenues derived from the audiences that they have
generated for publishers.

So the need for a consolidated approach is further demonstrated.

However evidence from many experiences in other countries is that the best way to accelerate
share of the online audience is by sites “sending” traffic to each other. Therefore there will be
a need for publishers to consider how best to encourage users to stay within the environment
of the partners, rather than disappear off to other services. This requires some complex
discussion and agreement.

Aggregation

Currently aggregation of the search engines means that a legitimate story in The Times, lies
alongside a blog from “Igor the eco freak”. This may be a legitimate facility but any service
offered by Google and Microsoft, will facilitate this, where a publisher based system, will
raise the value of legitimate content, while encouraging the idea of edited citizen
contributions. In addition search engines fail to offer a categorized, granulated archive search.
Development of such a service, which includes governmental, corporate and citizen
contributions, could become an enormously valuable source. And with the proposed
granularity the current searches are inadequate, and valueless.

Charging

As discussed excepting the FT and WSJ, and possibly specific sources relating to sport, sex or
finance, individual newspapers will struggle individually to charge. In fact a simple, universal
subscription process can be developed, based on price points for individual downloads,
complete newspaper copies, or access to specific databases or archives. These can be defined
and confidentially implemented by each publisher.

In addition a cross charging process can easily be developed, so if one title attracts a valued
reader to another title, a commission can be paid. The winning players for revenue will be
those with the most compelling content, thereby encouraging the free market.

Price Elasticity, and profitability

It is also possible to generate a unique system for measuring in real time the acceptability of
content pricing, which can then be fed back into a wider elasticity model, which not only
allows publishers to set price points, but also considers the relative impact of charging for
content, versus the potential advertising income from a wider audience. Such a model can be
used to determine the optimum profitability for the online service.

Competition and a free market

Given the neurotic regulatory controls on UK publishers, and the publishers’ own wish to
maintain their competitive advantage, it is important to create a process that not only
maximises opportunity and security for the industry, but is seen to enable strong competition,
within the market. However through the appropriate introduction of rules, a strong
technological solution, and the proven oversight of bodies such as the NLA and the NPA/NS,
such a system can be successfully developed, for the profit of everyone.

© Jim CHISHOLM
November, 2009