New business models are proliferating as news organisations search for novel sources of revenue

ON THE MORNING of September 3rd 1833 a new kind of newspaper went on sale on the streets of New York. With its mix of crime reports and human-interest stories, the Sun was intended to appeal to a mass audience, and its publisher, Benjamin Day, made it cheap: at one penny, it was one-sixth of the price of most other papers. The most popular newspaper in America at the time, according to Mitchell Stephens, author of “A History of News”, was New York's Courier and Enquirer, which sold 4,500 copies a day. Day's new “penny paper” appealed to people who had not bought newspapers before. Within two years the Sun was selling 15,000 copies a day.

In hindsight this was a turning point because it introduced a new business model to the industry. The Sun's large circulation attracted advertisers, and the resulting revenue enabled Day to keep the price of the newspaper down and its circulation up. Instead of relying mostly on selling copies, newspapers came to depend mostly on advertising. It was a great deal for all concerned: readers got their news cheap, advertisers could reach a large audience easily and newspapers could afford to employ professional reporters instead of relying on amateurs.

This model worked well for a long time. But it has come unstuck in the internet era as readers have shifted their attention to other media, quickly followed by advertisers. “The audience is bigger than ever, if you include all platforms,” says Larry Kilman of the World Association of Newspapers. “It's not an audience problem—it's a revenue problem.” News providers throughout the rich world are urgently casting around for new models. They are starting to charge for content on the web and mobile devices, as well as pursuing non-traditional sources of revenue such as wine clubs or dating services. Some are being supported by philanthropy. Nobody yet knows which, if any, of these models will work, but it is clear that revenue from online advertising alone will not be enough to cover the costs of running a traditional news organisation. Government funding is also off the table as rich countries struggle to reduce their debts. In America any talk of government support for the country's ailing newspapers ended when the Republicans retook control of the House in 2010. Subsidies would anyway merely postpone the inevitable.

Constant upheaval is part and parcel of capitalism's creative destruction, but those in the business argue that news is a special case. It may be a business, but it also plays an important part in a democracy: holding those in power to account, giving voters the information they need to make choices and making markets more efficient. To be sure, not all journalism has a civic function, and the media's ability to expose wrongdoing is easily overstated. “People want you to think that newspapering is ‘everyone is working on the next Watergate',” says Clay Shirky, a media guru at New York University. Most of the time it is not. But such “accountability journalism” has always been subsidised by other activities. So finding a new model to support journalism is in the interest of society as a whole.

One answer is to erect paywalls. Having long made content available free online, news providers are starting to restrict access to some or all of it to paying subscribers. The Times and Sunday Times of London, owned by Rupert Murdoch's News Corporation, put up a paywall around their websites in July 2010. Other papers have since followed, including the Dallas Morning News and, most prominently, the New York Times.

A decade ago the idea of a paywall appeared to have been widely discredited. Only specialist providers of business news such as the Wall Street Journal and the Financial Times seemed able to get people (or, more usually, people's employers) to pay for news online. Most readers were unwilling to pay for general news, and after experimenting for a while many news sites made some or all of their content available without restriction to attract as many visitors and advertisers as possible.

The trouble is that online advertising typically brings in less than 20% of a newspaper's advertising revenue, and rates on all but the most prominent pages are falling. There are billions of pages on the internet, so the value of an individual page is lower than that of a printed page. And now that advertisers can measure the effectiveness of advertisements, they may have realised they were paying too much. Optimists (such as executives at Google, which dominates online advertising) insist that internet advertising will become more valuable as it becomes more targeted, which will drive up prices. Revenue from online advertising is growing, but not fast enough to fill the gap opened up by the decline in revenue from print advertising and circulation. Gregor Waller, a former head of strategy at Axel Springer, a big European newspaper publisher, estimates that by 2020 newspaper circulation will have fallen by 50%, classified advertising revenue by 90% and display advertising revenue by 30%.

Hence the paywalls, which come in many forms. They can be watertight, like that at the London Times, but increasingly they are porous, letting publishers charge for access to content while also admitting casual visitors and allowing sharing. The Wall Street Journal, for example, puts much of its business and finance coverage behind a paywall but allows unrestricted access to other, less specialist stories. Another option is the “metered paywall”, pioneered by the Financial Times, which lets visitors to its site read ten stories a month before asking them to pay. (The Financial Times is owned by Pearson, which also owns half of The Economist.) At the New York Times, which has the world's most popular newspaper website, visitors can read 20 stories a month before being invited to subscribe. Metered paywalls are also being tested at the Berliner Morgenpost and Hamburger Abendblatt in Germany.

The beauty of the metered paywall model (which The Economist has adopted) is that frequent users can be asked to pay for access without putting off a lot of more casual users who attract advertisers. Most news sites have a small core audience of frequent visitors and a much larger group of readers who visit only occasionally (see chart 3). Some frequent users will jib at a paywall, but some will fork out. “Other newspapers are watching us and hoping that it works,” says Martin Nisenholtz, head of digital operations at the New York Times. Since it put up its paywall, visits to the paper's site have dropped by about 10% and page views by about 20%. But more people than expected are signing up.

Another new source of digital revenue is charging for content on mobile devices such as smartphones and tablet computers, but this market is still in its infancy. Of the 17m tablet computers sold in 2010, says Mr Kilman, 15m were Apple iPads—“and half of them were bought by people in the media industry.” Smartphones are far more widespread and represent a greater opportunity in the near term, says Mr Nisenholtz. According to Gartner, a market-research firm, 101m smartphones were sold in the first three months of 2011 alone. Strong sales of smartphone “apps”, or software, suggest that readers are prepared to pay for content on mobile devices. But the market seems unlikely to produce substantial revenue quickly enough to replace declining print income.

Access all areas

Existing readers of newspapers and magazines are generally unwilling to pay for news online or on mobile devices if it costs them extra. But many publications are adopting an “all access” model that grants print subscribers free access to digital editions as well. When the Dallas Morning News launched its paywall in March, for example, it also gave print subscribers unfettered access to the paper's website, iPhone and iPad editions, thus turning them into digital subscribers at a stroke. That lets people read the paper in whatever format they find most convenient at different times, and with luck will subtly change their perception of what they are paying $33.95 a month for: not just a printed newspaper seven days a week, but access to the news in a range of formats. As readers make greater use of the digital editions, says Ken Doctor, a news-industry analyst at Outsell, the hope is that they will mentally ascribe more value to those formats and less to print. By the time they are ready to give up the print edition, they should have got used to the idea of paying for digital.

Bundling digital access with print subscriptions, Mr Doctor adds, not only offers readers choice but also gives them an added reason to go on buying print editions, which still pull in the lion's share of advertising revenue. Moreover, papers may be able to publish less frequently in print and yet retain most of their print advertising. When Detroit's papers switched to publishing three or four days a week to cut costs during the recession (while publishing continuously online), they retained 93% of their print-ad revenue. A typical metro-area newspaper gets about 35% of its weekly print-ad revenue from the Sunday edition, says Mr Doctor. So newspapers might in time move to Sunday-only printing and publish digitally during the week.

A variety of other models are also being tried. In Slovakia, for example, several newspapers and magazines have just started using a shared-payment scheme that operates at a national level. Paying €2.90 ($4.10) on any of the participating sites unlocks premium content and features across all the sites for a month. The scheme has proved more popular than expected. Tomas Bella of Piano, the company operating the scheme, says this suggests that readers will pay for content, “but only when it is convenient enough”. Piano's model could work in 10-15 other European markets where language barriers protect content providers from direct foreign competition, Mr Bella thinks.

By contrast, two British newspapers, the Guardian and the Daily Mail, have made all their content available free online in an effort to transform themselves into global news brands. The Mail's website recently overtook the Huffington Post to become the world's second most popular newspaper site, according to comScore, an internet-ratings firm, and the Guardian is at number five. Both papers are adding staff in America to beef up their coverage and tap into a much bigger online-advertising market. The Guardian, whose parent company lost an estimated £33m ($51m) in the year to March, hopes to double its digital revenues to £91m by 2013. But it is still unclear whether online advertising can fill the gap left by declining print revenues, says Alan Rusbridger, the Guardian's editor. The all-access metered-paywall model favoured by American newspapers is problematic in Britain. Most sales are through independent retailers rather than subscriptions, so papers do not know who their readers are.

Mr Shirky doubts that most newspapers can get people to pay up online. “Paywalls have been presented as a castle keep, inside which the existing model doesn't have to change,” he says. “It's about defending the old model.” Likewise, Juan Señor of Innovation Media Consulting, a firm that advises newspapers around the world, reckons that “you won't fix the business model without fixing the editorial model.” He believes that as well as looking for new forms of revenue on the web, newspapers should overhaul their print editions to make themselves more relevant and thus boost circulation. His firm advises them to undertake a radical redesign, abandoning traditional sections and instead arranging the newspaper around themes that correspond to the way readers think, with a magazine-like emphasis on analysis and storytelling.

Correio da Bahia, a Brazilian paper that underwent this treatment, has been reorganised into four sections, offering a news summary, “More”, “Life” and “Sport”. Similarly, Libération, a French newspaper, stopped trying to provide comprehensive coverage of sport, leaving that to specialist sports papers, sales of which are booming in many European countries. After the redesign the circulations of both newspapers increased. But so far American newspapers have shown no interest in trying anything like this, says Mr Señor.

Newspapers can also use their trusted brands to generate new forms of revenue. Many quality newspapers, including the New York Times and Britain's Daily Telegraph, have launched wine clubs, for example. Canada's Globe and Mail offers branded cruises, as do several German newspapers; journalists appear as guest speakers on board. Marca, a Spanish sports newspaper, lets readers buy Nike football boots before they go on general sale, says Mr Señor. Aftonbladet, a Swedish tabloid, runs a hugely popular weight-loss club, a model it has licensed to several other European newspapers, including Germany's Die Zeit. Newspaper groups also operate online bookstores, host conferences and reader events, and provide education services.

The rise of philanthrojournalism

Another tack, now being tried across America, is to build new, internet-native metropolitan news organisations supported by philanthropy. Examples include the Voice of San Diego, the St Louis Beacon, the MinnPost in Minneapolis, the Texas Tribune in Austin and the Bay Citizen in San Francisco. “Where they exist, they are doing a very good job, in some cases exceeding the quality of dailies,” says Mr Doctor. Because traditional newspapers are in trouble, these not-for-profit online news organisations can take their pick of experienced journalists, many of whom are also attracted by the new sites' focus on politics, civic engagement and accountability journalism. “We believe the gap that we're trying to fill has to do with reporting,” says Jonathan Weber, editor of the Bay Citizen. “There's a lot of opinion out there, and a dearth of reporting.”

The Bay Citizen's business plan is based on four sources of revenue: large gifts and grants, donations from readers under a membership plan, syndication of content to other news organisations and corporate sponsorship of particular features on the website. The big question is whether the not-for-profit news model is sustainable. Arianna Huffington, whose Huffington Post co-operates with philanthropically funded news organisations, says a change in mindset is needed among donors. “I think we need to get into the habit of endowing not-for-profit journalistic enterprises, both at the national level and at the local level, the way people endow chairs at universities,” she explains.

What is clear is that starting with a clean sheet—using the latest digital tools, being free of printing presses, not depending on print advertising—gives not-for-profit news organisations an optimistic sense of being part of something new rather than of an industry in trouble. “I have always been of the view that it's a crisis for the traditional institutions, but that's different from there being a crisis for the profession,” says Mr Weber. “In a lot of ways it's a time of a lot of opportunity in journalism.”