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Of bail-outs and micro-payments

The trouble with the-internet-is-the-future vision is that - at least for now - it makes no economic sense. Yes, of course, it is much, much cheaper to produce a paper for the net. But even at that low cost, nobody has worked out how to make any money from internet papers, writes Vir Sanghvi.

india Updated: Feb 15, 2009 10:12 IST
Vir Sanghvi
Vir Sanghvi
Hindustan Times

In a funny sort of way, both of the issues that have dominated media gossip — and web-postings — this week, are related. The first is the talk of a so-called bail-out of the media by the government. And the second is the concept of micro-payments for media, one variation of which is discussed in the new issue of Time magazine.

As far as I can tell, what the print media barons and princesses are asking for is not a bail-out at all. They are saying that it is unfair for the government to buy ad space in newspapers at rates that are significantly lower than other advertisers. And they are complaining about the penal duties on the import of newsprint. The print barons say that as there is no domestic newsprint industry worth protecting, the massive duties represent a hidden tax on the press.

You can argue about whether the newspaper owners are right to make these demands. But what is indisputable is that it all comes down to paper.

Anyone who knows the print media will tell you that the business has two distinct components. The first is news gathering — salaries, news budgets, etc. — which is nearly always under pressure these days. The second is paper. A high level of duties in India ensures that newsprint, which is already expensive, is only available at a prohibitive cost in India. (The government waived customs duty on newsprint on Wednesday to provide some relief.)

As newspapers pay higher than global prices for paper but charge Indian cover prices, they try and make their money from advertising. When that dries up (as is now happening), they are in trouble. The only way to reduce the amount they spend on newsprint is to print fewer copies. But if circulations fall, then advertisers either refuse to advertise or ask for lower rates.

So the name of the game in the newspaper business is not the stuff that journos focus on: salaries, staffing levels, news-gathering budgets, expenses etc. All this makes very little difference to the big picture.

The key to profitability is lower paper cost.

Over the last decade, economists have been asking whether paper is worth the price. Apart from the environmental implications (millions of trees are felled each year to make paper), there’s the question of technological obsolescence.

The internet has provided paper-sceptics with a perfect answer. Already, young people in the West (though not in India as yet) are reading fewer and fewer papers. They tend to use the internet to get all the news they need (they are also watching less TV news but that’s another story).

If this change is already happening, then why not use it to redefine the newspaper? Sure, we can continue with the news gathering, the breaking of stories, the investigations, the writing of columns (like this one). But why does everything have to be printed on paper?

Why can’t we just put it on the net?

Consider the advantages. Newspapers save on paper. They no longer need to run industrial printing presses with hundreds of workers. The hawker commission (up to 50 per cent in the magazine business; a little lower for papers) would vanish. So costs would come down substantially.

A great newspaper could be published on the web for something like 25 per cent to 30 per cent of the cost of its print version. So, why waste money on the old print and paper model?

It’s an interesting argument and has found many adherents. Some newspapers (the Christian Science Monitor is the most notable example) have already become web-only publications on weekdays. Others (London’s Daily Telegraph, for example) are treating the web as their future and the print version as a dying relic of another era.

The trouble with the-internet-is-the-future vision is that — at least for now — it makes no economic sense.

Yes, of course, it is much, much cheaper to produce a paper for the net. But even at that low cost, nobody has worked out how to make any money from internet papers.

Look at all the examples of online successes — The Guardian, The Daily Telegraph, The New York Times, etc. — and you’ll find that the bulk of their revenues still come from the print editions, even though fewer people may read them than access the paper on the net. The truth is that it is almost impossible to make real money from online editions.

So, you can produce an online edition of say, Hindustan Times and abolish the print version. You might find that eventually more people will read this than the millions who read HT on paper.

But you won’t make much money.

Why should this be so? Well, two reasons: One, nobody likes paying for news on the internet. The subscription model for mass news sites has usually failed. People expect the internet to be free. So even those papers which had expected people to pay for accessing their sites have now gone back to the free model.

So, you can forget about any subscription revenues.

Two: advertisers, or at least those who advertise in papers, are still not in love with the internet. They feel they get more bang for their buck from display ads in print. They reckon that computer screens are not as advertisement-friendly as newspaper pages.

So, digital editions simply do not get the ad support they need to survive. There is advertising for business-to-business sites or trade sites. But not enough for general interest sites.

The micro-payment theory is an attempt to get around this. It combines two existing theories. The first is pay-per-view, which works on TV for special events, whereby you pay extra to see, say, Wrestlemania or a rock concert. The second is the Long Tail idea that in the internet era, businesses cannot make money from only a few top-selling products. Rather they will make small amounts from a greater variety of products but the total will add up to a huge amount.

What it says (in essence, there are many variations) is that people should pay a small amount to read, say, an individual article or a slightly larger amount to read a whole edition. Add up these small amounts and you get massive revenues.

It’s a fun theory, but I don’t think it will work. First of all, pay per view is viable only for special events once in a while. Even TV has abandoned that model for most programming.

Second, the micro-payment for media theory still operates on the assumption that people are willing to pay (even if it is tiny amounts) for content on the net. This is simply not borne out by experience. As Michael Kinsley, the founder editor of Slate wrote in the New York Times last week, no paper or magazine that depends on net users paying for content has ever made money.

So what does the future hold for newspapers?

Well, I think the outlook is gloomy. The biggies will ride out this crisis. But if the government continues to levy penal duties on newsprint, many of the smaller and language papers will die. Business papers will find the going increasingly tough as corporate, financial and market ads dry up.

When the crisis ends, there will be fewer papers with lower circulations. The flip side of this is that less money will be wasted on newsprint, fewer copies will be given out at derisory prices and those who continue to buy papers will be people who really care about the news and enjoy reading.

The internet will flourish, of course. But it will be a separate medium, like TV, for instance. It cannot and will never be a substitute for newspapers.

First Published: Feb 14, 2009 20:18 IST