Online Revenue Business Model Has Changed Little Since 1996

22 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 Online Revenue Business Model Has Changed Little Since 1996 by Donica Mensing This study finds that despite aggressive competition for advertising revenue, newspapers as a whole have not altered their online strategies significantly from 1996 to 2005. A fter several centuries of economic success, the American newspaper industry “is facing its greatest crisis in its 400-year history.”1 The market conditions that allowed newspaper companies to prosper—including high barriers to entry, effective use of economies of scale, monopoly power in individual markets and centralized production and distribution—no longer describe the news business.2 Instead, new publishing markets are characterized by low barriers to entry, intense competition, lower fixed costs and decentral- ized production and distribution, fundamentally changing the economic envi- ronment.3 The supply of news is multiplying across media channels in formats more attractive and engaging than newspapers to many people.4 In response, the newspaper industry is aggressively cutting costs, seeking new markets to increase demand and differentiating their products from those of the competition.5 However, the challenges faced by newspaper companies in making the transition from current business models to models that accommo- date new economic factors are significant in scale and scope.6 This study focuses on one key challenge facing the newspaper industry: how to generate sufficient revenue from online newspaper sites to continue covering the sizeable costs of operating a general interest news business. Based on two surveys of U.S. online newspaper managers, one conducted in 1996 and the other in 2005, this study __________________________________________ Mensing is an assistant professor in the Reynolds School of Journalism at the University of Nevada, Reno. She wishes to thank Jackie Rejfek, graduate student, and Jennifer Greer, associate professor, both at the University of Nevada, Reno, for their assistance with data collection.  Mensing: Online Revenue Business Model Has Changed Little - 23 answers basic questions about how online newspaper sites are generating revenue and how profit strategies have evolved since the early days of Web publishing. Developing successful business models for online news is of urgent interest, not just to owners of newspaper companies, but to all interested in the long term sustainability of in-depth news gathering, editing and publishing capabilities, which newspapers, more than any other existing product, represent. Develop- ing sustainable economic models to support independent, public-oriented journalism is a vital task for those interested in the future of news in our society. Print Newspaper Revenue Sources Print newspapers in the U.S. have relied primarily on advertising to support the costs of doing business, and this reliance has grown during the past two decades.7 Approximately 70 to 80 percent of total newspaper revenue is gener- ated by three sources of advertising: national and local display advertising and classified advertising.8 National advertising has become less important and classified advertising has become a more important revenue source over the past 20 years,9 increasing from 27.4 percent of total newspaper revenues in 1965 to 40.7 percent in 1998.10 While competition for advertising dollars has increased significantly and the share of overall advertising dollars spent on newspapers has declined, advertising expenditures for newspapers have grown in real terms during the past five decades, allowing for continued profitability of newspapers.11 The second most important source of print newspaper revenue is generated by subscriptions, approximately 18 percent of total newspaper revenue.12 Circulation growth, however, has declined since the mid-1980s.13 This has led newspaper companies to work to decrease circulation costs, often by deliber- ately shrinking geographical markets and reducing home delivery.14 Syndica- tion, single-copy sales and a variety of miscellaneous sources provide relatively small contributions to overall revenue for most newspapers. Online Newspaper Revenue Sources Four basic economic models for online profitability were identified in the early days of Web publishing: • subscriptions • advertising • transactional • the bundled model.15 Experiments with each of these models have been tried during the past 10 years, with varying levels of success. As Chyi and Sylvie16 point out, the economics of online newspapers are “particularly complex.” In their in-depth 24 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 interviews with 14 online news managers in the U.S., they found a great deal of uncertainty regarding the definition of markets, competition, products and the relationship between print and online newspapers. News managers classified revenue strategies as “locally” driven, meaning each site was finding its own path to profitability or failure.17 The primary revenue strategy for nearly all online newspapers is clear: Advertising has proven to be the most successful source of revenue.18 Online advertising has shown steady and impressive growth, with advertising rev- enues projected to have grown 30 percent in 2004 to a total of $10 billion in 2005; however, this amount is still a fraction of the total advertising market.19 Al- though demand for advertising in online newspapers has been steadily increas- ing and is projected to continue growing, the competitiveness of the online advertising market makes some question heavy reliance on this revenue source. One estimate is that online advertising in mid-size and larger papers will not “equal or surpass print revenues at such papers until 2018.”20 The subscription model has been much harder to implement online than in print.21 A few early online newspapers, including USA Today, the San Jose Mercury News (Mercury Center) and the Philadelphia Inquirer (Philadelphia Online) initially charged for access but quickly dropped their subscription fees and began focusing on advertising. The one exception was the Wall Street Journal, which introduced a subscription fee for nearly all content in 1996. The success of the Wall Street Journal Online has been attributed to its proven brand name in a specific niche market of business news, a situation that differentiates it from most general-interest newspapers.22 More recently, a few U.S. newspa- pers have implemented partial subscription fees,23 including the Spokesman- Review in Spokane, Wash., and The New York Times. As of 2005, the Newspaper Association of America identified only 44 U.S. online newspapers that charged a subscription fee, out of a total of 1,500.24 A survey conducted in Hong Kong found few residents willing to pay for content now and having no intent to pay in the future, lending further questions about the long-term viability of this strategy.25 Given the competitiveness of online advertising, the difficulty news sites have had in charging subscription fees and the changing market structure of news, no single online revenue source has yet emerged that appears to have the potential to support large-scale news-gathering operations. Instead, it appears that multiple revenue streams—taking the best from each of these models— may be necessary for economic survival online.26 However, few studies of online newspaper revenues exist to give observers and scholars a clear picture of how online news sites are making money and whether these models are evolving. The research questions in this study are designed to explore online newspaper revenue sources and to facilitate thinking about the long-term economic models that could be employed to sustain quality news production. The time period includes the first nine years of significant growth in online newspapers: from 1996 to 2005.  Mensing: Online Revenue Business Model Has Changed Little - 25 Research Questions RQ1: How did revenue sources for online newspapers change between 1996 and 2005? RQ2: How did practices related to charging for content change between 1996 and 2005? RQ3: Did online news managers describe the impact of the Web site on the print newspaper any differently in 2005 than in 1996? RQ4: Did the strategies online news managers think will be most profitable to pursue for their online products change between 1996 and 2005? Method Two surveys of editors and managers of online newspaper sites—a mail survey conducted in 1996 and an online survey conducted in 2005—were used to answer the research questions. The 1996 survey was sent by mail to the online editors of all U.S. newspapers publishing daily news on the World Wide Web as of April 15, 1996, a total of 187 online newspapers.27 Editors who did not respond to the first mailing after six weeks were sent a second mailing and a number were contacted by e-mail. The 1996 findings are based on data from 83 valid surveys that were returned by Oct. 15, 1996, a response rate of 44.3 percent. Respondents were representative of the total population based on a t-test that compared print circulation sizes of respondents and non-respondents. The 2005 survey was done entirely online between March 2 and March 25, 2005. A link to the online survey was e-mailed to individual newspaper managers of online news sites in three separate e-mail contacts during a two- week period. The survey reached 1,040 individual news managers. Of those, 242 completed at least some portion of the survey, for a response rate of 23.3 percent.28 The survey was 11 pages, designed so that each time users clicked to the next page, data were sent automatically to the server. Although 242 users completed the first page, there was a discernible drop-off in the completion rates on subsequent pages, and only 156 users answered questions on the last page. For this reason, all percentages referred to in the 2005 findings include only the respondents who answered the relevant question (valid percentage), not the total number of overall respondents. 26 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 Results Print Circulation of Respondent Newspapers The 2005 survey included a larger percentage of respondents from small newspapers than did the 1996 survey. Some 37 percent of the 2005 respondents were from newspapers with circulation less than 25,000, while 20 percent of the 1996 respondents were from smaller newspapers. Because many small newspa- pers did not have online news sites that were updated daily in 1996 but have subsequently added them, this change in the demographics of respondents does not seem surprising. Correspondingly, a larger percentage of respondents from the 1996 survey were from newspapers with circulations greater than 100,000 (34 percent) than in the 2005 survey (21.8 percent). Staff Size of the Responding Online Newspapers The staffing sizes of online newspapers remained relatively low between 1996 and 2005. In fact, the average number of full-time staff fell slightly between 1996 (M=4.2) and 2005 (M=3.86), although an independent samples t-test indicated this was not a significant decline. In 1996, more than a quarter of the respondents (27.7 percent) indicated they had no full-time staff; nine years later a third of the respondents indicated they had one full-time staff member. In 1996, 58 percent of the respondents had five or fewer staff; in 2005 nearly 80 percent of the sites had five or fewer full-time staff. In 1996, 16.7 percent (n=13) of the sites reported more than 10 full-time online staff; in 2005 only 7.6 percent (n=11) reported more than 10 online staff members. RQ1: Did revenue sources for online newspapers change between 1996 and 2005? A comparison of the 1996 and 2005 surveys reveals some significant differences in the mix of revenue sources between the two time periods. The 1996 survey indicated display advertising was the most important source of revenue in the early days of online publishing, providing approximately 38 percent of all revenue Table 1 for re- Estimated Percentage of Total Revenue from Each Revenue Source sponding o n l i n e Source Mean Mean newspa- Percentage Percentage pers. [See of revenue 1996 of revenue 2005 Table 1] I n t e r - Display Advertising 38% 32% Internet Access Fees 23 1 net access Classified Advertising 15 48 fees were Subscriptions 5 8 the second Premium Services 4 5 most im- Other Sources 3 19 Transaction Fees 1 2  Mensing: Online Revenue Business Model Has Changed Little - 27 portant revenue source, providing 23 percent of total revenue. Classified advertising contributed only 15 percent of total revenue, with all other sources (subscriptions, premium services and other) each contributing 5 percent or less of total revenue on average for each newspaper site. By comparison, the percentage of revenue derived from these different sources changed quite significantly in 2005. First, revenue from Internet access fees dropped precipitously, from 23 percent of revenue to 1 percent. An independent samples t-test showed that 1996 respondents (M=23.47, SD=41.6) received a significantly greater percentage of revenue from Internet access fees than did 2005 respondents (M=.833, SD=3.8), t (125)=4.2, p<.005. This source of revenue peaked early and is no longer a factor for online newspapers. A second significant change is an in- crease in the importance of revenue from Survey results classified advertising between 1996 and 2005; 1996 respondents (M=14.4, SD=28.11) re- show that more ceived far less total revenue from classified sites are charging advertising than did 2005 respondents (M=48.11, SD=27), t (182)=8.02, p<.005. Clas- for at least some sified advertising revenue became the single content in 2005 most important revenue source for online than in 1996 and newspapers by 2005, a trend mirroring the increase in revenue from classified advertis- significantly more ing for print newspapers. sites are requiring A third significant trend is the increase in importance of “other” sources of revenue. registration. In 1996, other sources only accounted for 3 percent of total revenue (M=2.97, SD=11.57), but by 2005, these sources accounted for 19 percent of total revenue (M=18.84, SD=.21.57), t(117)=5.1, p<.005. Since the survey specifically asked about revenue from archives, customization and transaction fees, these “other” sources could be from any of a number of other experimental sources. Since this was a close-ended question, no details were provided about what these sources might be. However, the increase in impor- tance of this revenue category does provide evidence that online news manag- ers are developing new revenue sources beyond those initially conceived in 1996. Revenue sources that remained relatively constant between 1996 and 2005 in terms of the percentage of total revenue included display advertising (38 percent of total revenue in 1996, and 32 percent in 2006), as well as subscription fees, transaction fees and premium services, such as archives. With the elimination of Internet access fees as a major source of revenue, it is clear that Web site news managers are focusing on four primary sources of revenue: display and classified advertising, subscriptions and other sources of 28 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 revenue. Of those four, classified advertising is by far the most important, followed by display advertising. Revenue from subscriptions and other rev- enue sources is much less important than advertising revenue. Other services – transaction fees, customization services and premium content – are relatively minor contributors to the overall financial health of online newspaper Web sites. The following section provides more detail about the contributions of various revenue sources to the overall economic strength of online newspapers in 1996 and 2005. Classified Advertising Reliance on classified advertising revenue in the past nine years has grown significantly. In 1996, just 13 percent of the online newspaper sites reported receiving half or more of their revenue from classified advertising, while in 2005, 48 percent of respondents reported that half or more of their revenue was from classified advertising. Display Advertising The total percentage of revenue earned from display advertising did not change much between 1996 and 2005. In the earlier survey, the mean percentage of revenue generated by display advertising was 38 percent for all respondents. However, there were significant differences between sites in the use of display advertising with more than half of the group reporting one-half or less of total revenue coming from display ads and almost a quarter of the group reporting 75 percent or more of revenue from display advertising. In 2005, the mean percentage of revenue earned from display advertising was 32 percent with much less variability between sites. More than 80 percent of sites reported earning one-half or less of all revenue from display advertising, and less than 10 percent of the sites earned more than 75 percent of their revenue from display advertising. Subscription Revenue The third source of revenue reported by online news managers is from subscriptions. In 1996, 67 percent of the sites reported no income from subscrip- tions; this percentage remained virtually unchanged in 2005, with 68 percent of the sites reporting no subscription revenue. In the earlier survey, only five out of the 83 respondents reported subscription revenue of more than 25 percent of total revenue; in 2005 this number was only nine out of 78 news managers. In 1996, on average across all respondents, 5.2 percent of revenue was generated by subscriptions. In 2005, the average percentage of revenue generated was 8.5 percent. Given the fact that 242 respondents returned at least part of the 2005 survey and only nine reported any significant subscription revenue, it is clear that subscriptions are a limited revenue source for most online newspaper sites.  Mensing: Online Revenue Business Model Has Changed Little - 29 Revenue from Archives Revenue from archives, while very small, provided measurable income in 1996 and 2005. In 1996, a greater percentage of sites reported a larger share of revenue from archives; as revenue sources have diversified, archives are contributing a smaller share of revenue. However, it is interesting to note that 60 percent of sites in 2005 indicated zero income from archives – a greater percentage than in 1996. Customization Services Customization services include charging users for personalized content, such as up to date stocks and sports, specialized search and retrieval, and other services. Revenue from customization services was not included in the 1996 survey, but was included in 2005. Four of the respondents to the 2005 survey indicated their sites earned some revenue from customization services in 2005. While these services take advantage of the capabilities provided by online news delivery, online newspapers are not employing them as a revenue strategy at this point in the development cycle. Transaction Revenue Transaction revenue is generated when sites provide links to services or products and earn some percentage of income for every item sold by the vendor as a result of the link. One famous example was an experiment in the late 1990s between the Book Review section of The New York Times Online and Barnes and Noble. The New York Times Online received a percentage of books sold through its exclusive link to the booksellers site.29 Very few sites are earning revenue from transaction fees, but the number is increasing slightly. Eight sites reported income from transaction fees in 1996; 11 sites reported earning income from transactions in 2005. Other Revenue Sources Just more than 20 percent of the respondents to the 2005 survey identified other sources of revenue as providing 40 percent to 80 percent of total revenue for their sites. Only 38 percent reported no additional sources of revenue. This is in sharp contrast to 1996, when only four news managers reported other unspecified sources of revenue. The 2005 survey shows that nearly two-thirds of news organizations (62 percent) have developed some alternative sources of revenue for their operations beyond traditional advertising and the other sources outlined above. RQ2: Did practices related to charging for content change between 1996 and 2005? Survey results show that more sites are charging for at least some content in 2005 than in 1996 and significantly more sites are requiring registration. However, only nine sites reported significant income from subscriptions in 30 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 2005. In 1996, only nine of the 83 sites had ever charged a subscription fee for accessing information, and only six sites (8 percent) had a subscription charge to access some of the content on the site. Nearly 70 percent of the respondents agreed or strongly agreed that: “Subscriptions limit the number of visitors to our site and this loss is greater than the benefits provided by paid subscribers.” By 2005, charging a subscription fee for access to at least some content had become more common. Nearly 25 percent of the respondents (n=56) reported that users are charged a subscription fee to access at least some of the informa- tion on their sites. While only three of the sites reported charging a subscription fee to access all of their content, 53 of the sites charge a fee to access at least some of their online information. When asked about the future, a few news managers indicated they plan to add a subscription fee to access at least portions of their site; roughly 40 percent of all respondents expected to have a subscription fee of some type in the future. In 2005, slightly less than 20 percent of the sites charged a pay-per-use fee to access some of the content on their sites. No question about pay-per-use was asked in 1996. The number of sites requiring registration for all or some access to content has grown significantly, from 5 percent of sites in 1996 to 38 percent of sites in 2005. Because registration allows for more targeted marketing, the growth in registration could indicate that online managers are working more rigorously to increase revenue from targeted advertising. Micropayments—charging small amounts of money for individual content items purchased one at a time—received a lot of attention in the press in the mid- nineties, but has yet to become a revenue source for news sites. Respondents in 2005 were much more negative about the potential for micropayments than were online news managers in 1996. [See Table 2] While the same percentage in both years (6 percent) strongly agreed that micropayments will be part of the future, the percentage of those who disagreed or strongly disagreed jumped from 24 percent in 1996 to 44 percent in 2005. An independent samples t-test showed that 2005 respondents (M=3.25, SD=1.09) were far less likely to agree that micropayments were a viable revenue source than respondents in 1996 (M=2.85, SD=.96), t (232)=2.7, p=.007. RQ3: Did online news managers describe the impact of the Web site on the print newspaper any differently in Table 2 2005 than in Potential for Micropayments 1996? Since the Valid Strongly Agree Neutral Disagree Strongly N early days of Percentages Agree Disagree Web newspa- 1996 respondents 6 % 32 % 39 % 17 % 6% 80 per publish- 2005 respondents 5.5 21 30 31 13 163 ing, observ- ers have From the survey: “In the next few years we will have a system of micropayments and will charge very small amounts for visitors to purchase content by the piece.”  Mensing: Online Revenue Business Model Has Changed Little - 31 questioned the impact of the online site on the core print product. Some fear that giving print content away for free online will cause subscribers to cancel their print subscriptions and rely on the online product for news. In 1996, only 2.4 percent of online news managers thought the online site would decrease interest in the print product. By 2005, however, 18 percent of online news managers thought online sites were decreasing interest in their print products. Interest- ingly, the same percentage of news managers in both surveys (38 percent) thought the online site would increase interest in the print product. The percentage of respondents who thought the online site would have no impact on the print product fell slightly from 46 percent in 1996 to 43 percent of respondents in 2005. RQ4: Did the strategies online news managers think will be most profitable to pursue for their online products change between 1996 and 2005? In both the 1996 and 2005 surveys, respondents were asked an open-ended question about the strategies they thought would be the most promising for online newspaper sites. The question generated a wide variety of responses in both years, revealing some interesting shifts in emphasis between the two surveys. [See Table 3] While the number of respondents emphasizing advertis- ing and paid subscriptions grew slightly between 1996 and 2005, the number of respondents who described audience-centered, or content-centered strategies declined steeply, from 24 percent of all comments in 1996 to 8 percent of all comments in 2005. The number of respondents mentioning customization services and transaction fees did grow, from 11 percent of all comments to 18 percent of all comments in 2005, indicating more awareness of the potential for alternative revenue sources to emerge online. The other surprising result was the number of respondents in 2005 (13 percent) who said they “didn’t know” what strat- e g i e s Table 3 would be Profit Strategies for Publishing Web Newspapers m o s t promising. 1996 2005 Respon- n % n % dents in Pursue advertising-oriented strategies 18 40 44 48 2005 also Pursue subscription, charging avoided all for premium content strategies 5 11 12 13 mention of Pursue customization, transaction fees, micropayments 5 11 17 18 p a r t n e r - Pursue strategies to build audiences, ships or al- attract them through content 11 24 7 8 liances, a Not sure what strategies will work 2 4 12 13 topic that Build alliances and partnerships 4 8 0 0 emerged as Total 45 100 92 100 a minor From the survey: “What do you think are the most promising profit strategies for publishing theme in Web newspapers?” 1996. 32 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 The 2005 survey asked respondents to rate various revenue sources on a five-point scale from Unimportant (1) to Very Important (5). The responses show clearly that advertising is considered the most important way to make money on online newspaper sites. [See Table 4] Classified advertising was considered very important by almost 80 percent of the respondents, with 58 percent identifying display advertising as very important. Respondents were extremely divided on the importance of subscriptions, with 34 percent rating subscription revenue unimportant and 26 percent considering it very impor- tant. Nearly half of all respondents considered subscriptions somewhat or very important, while 40 percent considered them unimportant or somewhat unim- portant. Revenue from archives was considered somewhat or very important by 35 percent of the respondents, slightly less than the number who considered archives unimportant to their current business model. All other revenue sources were considered much less important. “Other sources” were considered more important than were transaction fees, customized services or Internet access fees. Discussion T h i s comparison Table 4 of the rev- Importance of Various Revenue Sources to 2005 Business Models, e n u e In Percentage sources of Source 1 2 3 4 5 Mean o n l i n e Response newspapers b e t w e e n Classified advertising 3 1.7 .6 15.5 79% 4.67 Display advertising 3 4 5.7 29 58 4.36 1996 and Subscriptions 34 6 14 21 26 2.99 2005 shows Archives 32 13.5 20 25 9.6 2.67 that modest Custom services 63.8 12.8 14.8 6.7 2 1.67 c h a n g e s Transaction fees 55.4 8.8 22.3 12.2 1.4 1.95 have oc- Internet access fees 78.8 3.4 12.3 4.1 1.4 1.5 Other sources 42.4 3 27.3 12.1 15.2 2.5 curred in the past nine 1=Unimportant; 2=Somewhat Unimportant; 3=Neutral; 4=Somewhat Important; years. The 5=Very Important. N=174. mix of revenue sources has changed somewhat, with revenue from Internet access fees nearly disappearing by 2005 after providing significant revenue in 1996. Advertising has become a much more important source of revenue; nearly half of all respondents earned at least half of their total revenue from classified advertising in 2005. Revenue from subscription fees is still very low but more sites were charging for some content in 2005 than in 1996, and more sites were requiring registration to access some or all content. Micropayments are not considered a viable or important potential source of revenue by any but a handful of news managers. “Other” sources of revenue beside the primary ones  Mensing: Online Revenue Business Model Has Changed Little - 33 identified in the survey are becoming more important, with nearly two-thirds of all sites earning some revenue from alternative sources. Overall, sites earned an average of 18 percent of total revenue from sources other than advertising, subscriptions and archives. Despite these modest changes, there is no evidence that the four basic revenue sources of advertising, subscription, transactional and bundled ser- vices have been re-conceptualized, at least in any significant scale. Despite massive changes in the market for news and aggressive competition for adver- tising revenue, newspaper managers as a whole do not appear to have altered their online strategies significantly during this nine year time period. The most important revenue source for many online newspapers is classi- fied advertising, yet classified ads are the single most vulnerable revenue source for online newspapers because of increasingly successful online competition. A number of industry analysts have pointed to the risk of charging for classified advertising30 as a long-term revenue strategy in the face of aggressive online competitors that provide classifieds for free.31 If online newspapers are going to continue to rely on this revenue source, they will have to move from the highly crowded field of consumer-to-consumer classifieds and focus on other types of classifieds, including bundled ads for consumers (such as Cars.Com and CareerBuilder.com), bundled classifieds for business-to-consumers32 and “so- lidify local classified vertical categories” as mentioned by one of the survey respondents. Other forms of targeted advertising do appear promising,33 providing a bright spot in revenue projections for many online newspapers. Respondents to the open-ended question about profit strategies mentioned the potential for contextual advertising, better targeted ads, customized ads, sponsorships, new opportunities for hyper-local advertising and “truly dynamic advertising that provides information to readers.” Respondents to the survey anticipated growth in retail ads, mentioning database directories driven by search and “custom ads that contribute to the interest and lifestyle choices of our readers.” Another news manager recommended a strategy to “bring customers to advertisers, creating virtual communities.” While these innovations in advertising may generate sufficient revenue to keep some or many online newspapers operating, it appears they will need significantly to accelerate the scale and scope of this revenue source if they are to thrive successfully in a market that is fundamentally different from the market print newspapers have grown to dominate in many communities. The debate over free vs. paid content, which has raged since the earliest days of Internet newspapers, remains unresolved. A quarter of respondents in 2005 rated subscription revenue as “very important” in their current business models and a third rated subscription revenue as “unimportant” in their current business plans. Clearly the recent New York Times experiment with TimesSelect will be watched closely for indications of the potential of charging for premium content at the national level; experiments with charging at sites such as the 34 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 Spokesman-Review in Washington state will be watched for potential at the local level.34 It would also be useful to examine closely the content Internet users do pay for online to understand better the lessons that could be applied to the news industry. Despite the success of Apple iTunes and other services that are experiment- ing with micropayments and pay-per-use content models, online news manag- ers did not provide much support or anticipate much growth in this revenue source for online newspapers. Given the success this model is having in other Internet sectors, it would be reasonable to encourage experimentation and investigation of alternative models, such as micropayments in the online news economy.35 Judging from the answers to the open-ended question about promising revenue strategies, few of the 2005 respondents are thinking about content as a path to profitability. Yet attention to content is one strategy that many analysts argue could benefit online news sites in the long term.36 Online newspapers are in an ideal position to conduct research on what content is attractive to readers and why, as well as to consider what content is needed by a community and how to provide it. Research on the placement and timing of content, types of headlines, types of enriched content and multimedia elements could be carried out to understand better what attracts and engages users. These types of usability studies could do much to educate news providers about the evolution of the use and presentation of news. This does not mean that reporters and editors should respond passively to the market. Instead, they should under- stand how to use content research to ensure that news is conceived, developed, shared and published in ways that respond to the genuine needs and interests of citizens. Focusing exclusively on advertising as the primary source of revenue, without working creatively to consider the quality, organization, interactivity or type of information and experience offered to users, violates many of the lessons learned by successful online content services.37 By relying on traditional advertising as a primary revenue strategy, online news managers are forced to design online sites that make advertising a primary activity on their pages. Failing to consider how the basic purpose of newspapers is transferred to an online environment minimizes the value of the overall product. Now, more than ever, news managers have to articulate clearly the purpose of their work. The online environment forces organizations to focus on what they offer to users. In the formerly monopolistic environment of many newspapers, the purpose of the news organization was apparent and unchal- lenged. In the highly competitive online environment, this purpose is far less clear. This fact represents both a challenge and an opportunity for newspaper journalists and managers. No simple model has been found to assure profitability for the online newspaper industry. It may be that adaptability to local conditions and the development of multiple revenue streams site-by-site will be the most promis- ing path to profitability. However, based on the data in these two surveys, there  Mensing: Online Revenue Business Model Has Changed Little - 35 is little evidence that the industry is addressing this problem imaginatively or comprehensively, given the scale of change in the market economy in which newspapers operate. Observing the small size of most online newspaper staffs, the tentativeness of news managers to articulate promising revenue strategies and the significant reliance on classified advertising, the industry as a whole does not appear to be actively investing in the type of long-term research and development necessary to ensure survival in the new digital economy. How news is financed is an issue that concerns more than just the owners and employees of newspapers and online news sites. Developing sustainable business models to support organizations and individuals who produce inde- pendent news in the public interest is vital to the continued health of democratic governance. Scholars, business managers, journalists and the public all have contributions to make in developing a system of news and information that takes advantage of the new digital environment while preserving the values of independent information in open and free societies. Articulating a clear pur- pose for the existence of online news in our communities, as well as carrying out systematic research on new revenue models would be helpful to the future of online newspapers. In addition, in-depth case studies of revenue strategies pursued by non-newspaper online sites, experiments on existing sites, careful observations of user trends and user-focused research could help journalists and citizens move from a news economy built on print-based newspapers to an economy with rich news organizations thriving on a variety of platforms. Notes 1. Douglas McCollam, “A Way Out: How Newspapers Might Escape Wall Street and Redeem Their Future,” Columbia Journalism Review (January/February 2006): 19. 2. Gilbert Cranberg, Randall Bezanson and John Soloski, Taking Stock: Journalism and the Publicly Traded Newspaper Company, (Ames, Iowa: Iowa State University Press, 2001). 3. Michael Smith, Joseph Bailey and Erik Brynjolfsson, “Understanding Digital Markets: Review and Assessment,” in Understanding the Digital Economy, eds. Erik Brynjolfsson and Brian Kahin (Cambridge, Mass.: MIT Press, 2000): 99-136; Ben Scott, “A Contemporary History of Digital Journalism,” Television & New Media 6, no. 1 (2005): 89-126; Brian Kahin and Hal R. Varian, eds., Internet publishing and beyond: The economics of digital information and intellectual property, (Cambridge, Mass.: MIT Press, 2000). 4. Merrill Brown, “Abandoning the News,” Carnegie Corporation of New York 3, no. 2 (2005), <http://www.carnegie.org/reporter/10/news/> (31 January 2006). 5. David Carr, “Woodward? Google? A Plague Week,” The New York Times, 21 November 2005, sect. C, p. 1; Paul Farhi, “A Bright Future for Newspapers,” American Journalism Review (June/July 2005): 54; Bruce Garrison, “Online Newspapers,” in Online News and the Public, eds. Michael B. Salwen, Bruce Garrison and Paul D. Driscoll (Mahway, N.J.: Lawrence Erlbaum Associates, 2005), 3-46; John Morton, “Spreading the News,” American Journalism Review (August/September 2005): 80; McCollam, “A Way Out: How Newspapers Might Escape Wall Street and Redeem Their Future.” 6. Scott, “A Contemporary History of Digital Journalism,” 97. 7. Dominic Gates, “Newspapers in the Digital Age,” Online Journalism Review, 1 May 2002, http://www.ojr.org/ojr/future/1020298748.php (28 January 2006); Philip Meyer, The Vanishing Newspaper: Saving Journalism in the Information Age, (Columbia, Mo.: University of Missouri Press, 2004); Joseph Nocera, “Trying to Wean Internet Users From Free Things on the Internet,” The New 36 - Newspaper Research Journal • Vol. 28, No. 2 • Spring 2007 York Times, 12 November 2005, sect. C, p. 1; Michael Scherer, “Newspapers Online: Why Information Will No Longer be Free,” Columbia Journalism Review (January/February 2003): 6. 8. Scott, “A Contemporary History of Digital Journalism,” 90. 9. Stephen Lacy and Todd F. Simon, The Economics and Regulation of United States Newspapers, (Norwood, N.J.: Ablex Publishing, 1993); Robert G. Picard, “U.S. Newspaper Ad Revenue Shows Consistent Growth,” Newspaper Research Journal 23, no. 4 (2002): 21-33. 10. Cranberg, Bezanson and Soloski, Taking Stock: Journalism and the Publicly Traded Newspaper Company; Picard, “U.S. Newspaper Ad Revenue Shows Consistent Growth.” 11. Picard, “U.S. Newspaper Ad Revenue Shows Consistent Growth.” 12. Cranberg, Bezanson and Soloski, Taking Stock: Journalism and the Publicly Traded Newspaper Company. 13. Jim Fuquay, “Newspapers confront hard challenges,” Star-Telegram, 4 December 2005, <http://www.dfw.com/mld/dfw/13325879.htm> (8 January 2006). 14. Picard, “U.S. Newspaper Ad Revenue Shows Consistent Growth.” 15. Susan M. Mings and Peter B. White, “Profiting from Online News: The Search for Viable Business Models,” in Internet Publishing and Beyond, eds. Brian Kahin and Hal R. Varian (Cambridge, Mass.: MIT Press, 2000): 62-96. 16. Hsiang Iris Chyi and George Sylvie, “Online Newspapers in the U.S. – Perceptions of Markets, Products, Revenue, and Competition,” The International Journal on Media Management 2, no. 2 (2000): 69-77. 17. Chyi and Sylvie, “Online Newspapers in the U.S.– Perceptions of Markets, Products, Revenue, and Competition.” 18. Chyi and Sylvie, “Online Newspapers in the U.S.– Perceptions of Markets, Products, Revenue, and Competition.” 19. Project for Excellence in Journalism, State of the News Media, Journalism.org, (2005), <http:/ /www.stateofthenewsmedia.org/2005/narrative_overview_economics.asp?cat=4&media=1> (8 January 2006). 20. Lori Robertson, “Adding a price tag,” American Journalism Review (December 2005/ January 2006): 56. 21. Donn Friedman, “From Free to Fee in 10 Easy Steps,” Online Journalism Review, 5 November 2003, <http://www.ojr.org/ojr/business/1068080483.php> (28 January 2006); Steve Outing, “Paid vs. free: The Debate that Never Ends,” Poynteronline, 14 March 2005, <http://www.poynter.org/ content/content_view.asp?id=79730> (28 January 2006); Katharine Q. Seelye, “Can Papers End the Free Ride? Publishers Face the Risky Economics of Charging Online,” The New York Times, 14 March 2005, sect. C, p. 1. 22. Evan I. Schwartz, “Advertising Webonomics 101,” Wired (February 1996), <http:// www.wired.com/wired/archive/4.02/webonomics.html> (8 January 2006); Iver Peterson, “Wall Street Journal on Line: Readers Pay but Profits Remain Elusive,” The New York Times, 10 February 1997, sect. D, p. 8. 23. Lori Robertson, “Adding a price tag.” 24. Lori Robertson, “Adding a price tag.” 25. Hsiang Iris Chyi, “Willingness to Pay for Online News: An Empirical Study on the Viability of the Subscription Model,” The Journal of Media Economics 18, no. 2 (2005): 131-142. 26. Jonathan W. Palmer and Lars Bo Eriksen, “Digital newspapers explore marketing on the Internet,” Communications of the ACM 42, no. 9 (1999): 33-40; Steve Outing, “The Death of the Advertising Model? Nah!,” Stop the Presses, 22 May 1996, <http://www.mediainfo.com/ephome/ news/newshtm/stop/stop522.htm> (8 January 2006); Lori Robertson, “Adding a price tag.” 27. Donica Mensing, “The Economics of Online Newspapers,” (paper presented at AEJMC, Baltimore, 1998). 28. This response rate is acceptable for Web surveys according to Roger D. Wimmer and Joseph R. Dominick, Mass Media Research: An Introduction, 7th ed. (Belmont, Calif.: Wadsworth, 2003).  Mensing: Online Revenue Business Model Has Changed Little - 37 29. Matt Welch, “What If You Couldn’t Trust The New York Times?” Online Journalism Review, 24 April 1999, <http://www.ojr.org/ojr/ethics/1017968858.php> (10 January 2006). 30. Steve Outing, “Free Classifieds: Craigslist, Google, and Next, Microsoft,” Poynteronline, 8 December 2005, <http://www.poynter.org/column.asp?id=31&aid=93338> (22 January 2006). 31. Adam Lashinsky, “Burning Sensation: In the Beginning, Craigslist was a Casual E-mail Sent to Friends. Could it End by Turning Newspaper Classifieds to Ashes?” Fortune Magazine, 12 December 2005, <http://money.cnn.com/magazines/fortune/fortune_archive/2005/12/12/ 8363113/index.htm> (22 January 2006) 32. Mike Hughlett, “For Papers, Classified Ad Story Gripping: Internet Sites Gaining, but Papers Own Some,” Chicago Tribune, 25 December 2005, <http://www.chicagotribune.com/ business/chi0512250018dec25,1,4528550.story?coll=ch-business-hed&ctrack=1&cset=true> (22 January 2006) 33. Borrell Associates Inc., “2006 Outlook: Local Online Growth Continues (For Some),” executive summary, September 2005, <http://www.borrellassociates.com/report.cfm> (15 Octo- ber 2005); Yelvington, “Don’t Mistake Quiet for Malaise.” 34. Lori Robertson, “Adding a price tag.” 35. Vin Crosbie, “Content, or Malcontent?,” ClickZ, 14 January 2004, <http://www.clickz.com/ experts/design/freefee/article.php/3298841> (13 January 2006); Crosbie, “Past Is No Prologue for Micropayments.” 36. Vin Crosbie, “What Newspapers and Their Web Sites Must Do to Survive,” Online Journalism Review, 4 March 2004, <http://www.ojr.org/ojr/business/1078349998.php> (13 Janu- ary 2006); Tim Porter, “Making Online Readers Count – and Pay,” First Draft, 6 November 2003, <http://www.timporter.com/firstdraft/archives/000219.html> (13 January 2006); Scott, “A Con- temporary History of Digital Journalism.” 37. Robert G. Picard, “Changing Business Models of Online Content Services – Their Implica- tions for Multimedia and Other Content Producers,” The International Journal on Media Management 2, no. 2 (2000): 60-68.