With the popularity of online news, providers from all media have established a beachhead on the Internet. However, many have yet to discover a profitable means by which to provide their services. Traditional media, such as print, television and radio have for some time discovered their appropriate business models. Advertising has played a primary role for all media, while subscription fees make up the balance. Providers offer advertisers a mass market for them to distribute their message, in exchange for a fee, which can often be quite large. Consumers of these news sources have become accustomed to the relatively low costs (or even no costs) associated with them.
However, this presents a problem as news providers rush to the Web. As in the physical world, developing and maintaining an effective means to disseminate news in Cyberspace is an expensive endeavor. A variety of business models are presently utilized, none of which are resulting in profitability. In this section, three primary models are presented: 1) Free, 2) Subscription, and 3) Fee/Free Hybrids. As will be discussed, which model succeeds for a provider often depends on the content offered.
Given the relative success providers have experienced with advertising-based revenue models in the physical world, such a model seems a natural extension to the Web. Today, consumers happily purchase televisions and radios, enjoying programming free of charge (with the exception of cable TV). In exchange they subject themselves to periodic commercial interruptions. In this model, providers expect users who purchase computers with Internet connections (compare to cable TV) to surf the channels of the Web, enjoying its content, while advertising banners and icons quietly (or not so quietly) sit on various parts of the screen.
In this model, the expectation is that revenues from advertisements will offset the costs of providing the news service. This has for many years successfully worked on television and radio; however, thus far the results have been mixed on the Web. Much of the difficulty with this model is the lack of precise advertising metrics. Advertisers willingly pay large fees if they understand who and how many people will view the copy; ROI analysis requires this. The infantile Web still lacks meaningful standards by which to provide this valuable information.
If effective metrics are established, who will find this model attractive? Providers of general news are gravitating this way. Substitute sources of such news are plentiful and inexpensive. With news access listed as a primary reason users access the Internet, it is unlikely that they will be willing to pay additional fees to access general news. Television networks and their corresponding sites (e.g. CNN, MSNBC), as well as sites whose primary business is elsewhere (e.g. Yahoo!) freely provide news to consumers. With television and radio serving as the primary source of news for 70% of the general public (Source: Radio & Television News Directors Foundation), the economics for charging users for online news look poor.
In order to compete with such sites, online news sources must rely on brand image to attract readers and advertisers. As will be seen in the next section, to do otherwise and charge for access, an online source must present a significant value proposition to the user.
The Newspaper & Magazine Model
While television and radio stand as the primary sources for information, 24% of the general public turns to newspapers. Readers willingly pay a daily fee for the newspaper, or receive discounts for long term subscriptions. In either case, readers enjoy the advantages of relatively low-cost news, which is subsidized by advertising revenues to the publisher. Following on this success, providers, primarily print sources, have pursued this strategy of charging users. Economically, the model is sound. Publishers do not want to cannibalize print revenues by providing free online access to their material.
However, as was indicated in the previous section, general news is plentiful in both the physical and virtual worlds, both at no cost. The challenge to providers who wish to charge for their content is to provide value-added service or content. While services will be discussed in a later section of this report, the issue of content is important for this model to succeed. To date, providers who are utilizing this model are those whose content is very specialized and valuable because of it. Business publications, such as The Wall Street Journal and soon Business Week, as well as industry trade journals charge users to access their online content. In most cases, print subscribers have reduced or no cost access, while users are often welcome to subscribe to the online version only. The implications here reflect back to the concept that alternatives to general news are plentiful. Specialized, niche providers can afford to charge given the virtual monopoly they have over their content.
However, in the broader sense, consumers expect more if they must go to their computer for news. Personalized news, archives, and chat groups and are only some of the services offered. However, it seems unlikely that users are willing to pay for the occasional use of these services to gain daily access to the news. In this light, the hybrid model emerges as a popular choice for providers.
With the advent of the Web, the rules of business are rapidly changing. Old models do not fit nicely into the Internet. Accordingly, it is not surprising to see a new revenue model emerging to handle the unique interactive nature of the Web. A fully adverting based model works well for providers of general news, while niche providers enjoy charging their users. In the gray area in between, a hybrid model is developing. Providers are developing two revenue streams from their sites - advertising and subscriptions. Unlike the newspaper model, however, the Internet model offers users free access to selected areas of the site. For those readers looking for something more in-depth and value-added, minimal subscription costs are charged. Alternatively, those with subscriptions to print editions, often are permitted free access.
Providers are finding this model attractive for a number of reasons. First, an online presence can generate interest in its physical world counterpart. In much the same way a free sample works, a surfer can sample some of the offerings, and determine, risk-free, whether they might be interested in either a physical or virtual subscription. Second, the Hybrid model serves to alleviate the problem of cannibalization. By providing a value-added element to the site, readers of print copy who are offered free access, have the incentive to remain a subscriber. Alternatively, those who like the provided content, have the choice of either a print or Web edition. In either scenario, a revenue stream is preserved.
Today, a large number of sites are operating under this model. Those that choose this model are often not general purpose or highly specialized news. However, there is enough unique content that with the proper value-added content, the sites appear attractive. For example, a user can access the ESPN site for free, including services as a scoreboard ticker and sports related stories. However, for an annual or monthly charge, users gain access to such features as chat rooms, Real Audio broadcasts and customizable statistics. The extent to which a site differentiates between the free and premium sections varies, but the primary purpose of all of the sites seems to be physical edition promotion. Few rely on the sites as a revenue driver, but more a preserver. However, many sites require "registration" to gain access to the free areas, which supports marketing efforts.
The only Web-based service in our list of sites which is currently charging is The Wall Street Journal, often cited as the most successful news Web service. Since the Internet is such a recent medium for delivering news, few sites are charging for a service which is generally inferior to more traditional news channels. Possible ways of charging for news service include:
The issue of charging for news access on the Web is a challenging one. In addition to the difficulty of convincing readers to pay for what is available elsewhere for free, publishers are faced with a convenience issue. Television and radio are a remote control click away, and can be enjoyed in the living room or in the car. A newspaper (or magazine) is extremely "user-friendly." Readers enjoy having a physical paper that is easy to read on a train or bus, at the kitchen table, in bed, or any other comfortable place. It does not require booting up a PC, dialing into an ISP, and staring at screen as a Web page slowly melts into view. After all of this, users are still treated to the same news that can be waiting on the front porch each morning.
The challenge of providing news online is to bring added value to the user. Does the site give a reader reason to come back the next day, or rather simply pick up the daily paper or turn on CNN? Most certainly, access technology will have to evolve further to answer this question.