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Ken Doctor’s work centers on the transformation of consumer media in the digital age. He is the author of “Newsonomics: Twelve New Trends That Will Shape the News You Get,” which has been translated into Mandarin Chinese, Korean and Portuguese. He contributes to his own Newsonomics.com website... More
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  • Nine Questions on the Dallas Morning News' New Paywall 0 comments
    Mar 14, 2011 1:00 AM | about stocks: AHC, BLC, MNI, SSP, NYT, NWS, AOL
      Don't mess with Texas, Lyle Lovett has advised us. That may be worth keeping in mind as publisher Jim Moroney turns a lot of conventional wisdom on its ear and launches a pay wall in America's fifth-largest metro area and eighth-largest city.

    Moroney, right or wrong, is a true believer, and that's more than refreshing in an era of silent private equity newspaper ownership, round 17 of the Sam Zell circus and a daily newspaper world that is moving too timidly to embrace the revolutionary news reading instrument of the day, the tablet.

    Listen to Moroney, as I have, in numerous conversations over the last year, and you get the sense he's a rational Howard Beale, whom Peter Finch played in the Oscar-winning 1976Network. He's mad as hell that American journalism hasn't found a new way to pay for itself in the in-between print/digital age and is hellbent on discovering the secret formula, or more precisely, on being in on the creation.

    It's easy to say, as some of us have, that paid content models seem best suited to two ends of the news spectrum. On one hand, there are the Wall Street Journals, Financial Times, Economists and New York Times (maybe), high-end publishers with deep, broad and proprietary content. On the other, the Augusta Chronicles and Chico Enterprise Records of this world, smaller papers serving smaller communities without much direct competition.

    But, metros? Metros have hemorrhaged ad dollars and readers for the better part of a decade, many caught betwixt and between, not national enough for us to use them as daily online digital news sources and not local enough to be daily must-reads.

    To that, Moroney says hogwash: the big, high-quality metro daily must survive and prosper if Americans are to get the experienced, in-depth journalism their little democracy demands.

    So, as Monday closed, the wheels were in motion to launch the ambitious Dallas pay experiment. It's big, foreshadowing the one soon to emerge at the New York Times. Within the Morning News experiment, we see a test of just what big metro papers can do to survive. If the Dallas Morning News with its market dominance, lineage, and news product and staff can't pull off the pay push, then it's doubtful it can work in other metro areas. If it does begin to work, then the world will take notice.

    The likely terms are simple:

    • Print subscribers, who pay between $30 and $33.95 (the new rate) a month, will get full access to Morning News digital content, delivered online and through new (and expanding) apps, developed in part with the New York Times' Press Engine initiative. "Subscriber" is defined as seven-day, five-day (Wednesday-Sunday) and Sunday only.
    • Digital-only subscribers will have to pay $16.95 a month for a “comprehensive digital package” that includes online and app access. It may sell one-off iPhone or iPad subscriptions, those offerings complicated by Apple's hazy policies.
    • Non-print and non-digital customers will see national and global news, wire and syndicate stuff, and commercial content, of course. Some breaking news will be free, but, those stories with a "D," meaning staff-written local content, are off-limits to non-payers. Non-payers won't be able to comment on stories or share photos.

    What's the big point here? There are a number of moving pieces, but the biggest may be staking out the 50/50 digital future. That's getting maybe half of revenue from readers and half from advertisers. For decades, U.S. publishers built great profits on an 80% advertising/20% circulation revenue mix. As both print ad revenue has halved and digital ad revenue, while growing, has been tamped down by hyper-competitive pricing, that leaves publishers turning back to readers. The idea: get readers to pay more of the freight for all kinds of content. (The same point was made well today by ESPN Editorial Director Gary Hoenig at a University of Missouri iPad conference: "We may make more from consumers than advertisers.")

    Look at 2010 final financials of A.H. Belo, the Morning News' parent company, and you see that about 33% of its revenue is from circulation and 67% from advertising (once you take out revenue from printing and distribution). A.H. Belo is largely made up of three bigger papers (Dallas, Providence Journal and Riverside Press-Enterprise), and of those the Morning News has been the most aggressive in circulation pricing, so its own circulation revenue contribution is about 37%.

    How aggressive has the Morning News been in pricing? The paper has priced up from about $18 to a current $33.95 per month for the paper, in about two years. That's a52% increase for home delivery, among the highest in the country, and that increase came in the teeth of the recession. Unusually, the Morning News was one of the first to employ Salt Lake City-based The Modellers to bring analytics into pricing decisions, the kinds of decisions that used to be made on whims. The Modellers practice involves "product development, pricing, segmentation, message optimization and line/portfolio optimization studies." The result: Belo showed a 3.3% increase in circulation revenue in 2010, one of only a few newspaper companies to show growth there.

    How big will the Morning News payoff be? Let's look at the emerging one percent rule here. If the Morning News were to get -- after some period of time -- one percent of its 4-5 million monthly uniques to sign up for a digital-only subscription, and stick, that would be worth $9 million a year. (That's 45,000 people paying $204 annually, or $17 a month.) That compares to the Morning News taking in more than $60 million in print circulation revenuein 2010. So it's not a big, game-changing number. Get two percent, and it's a more intriguing $18 million a year. Those dollars, though, are just the easier-to-count ones. Does the new plan show churn of print subscribers, and thus of print circulation revenue and print ad revenue? Big bonus, if it does.

    So we might ask whether the wall is really about retaining print subscribers longer. No, it's a by-product of it. First and foremost, publisher Jim Moroney wants to change the value equation - digital news is as much worth paying for print news -- and set up a large, forward-reaching revenue stream as readers move from print to the tablet. Yes, the bundling of included digital -- not free digital -- may slow down print churn; readers may say, "I'll just take the whole package, even though I'm reading the paper less." If it does, that's gravy, as Moroney sees it, because any delay in print decline helps keep print ad revenues up.

    Note the math here: digital-only access ($204) is almost exactly half the annual cost of seven-day, digital included, subscriptions ($406). The Morning News is trying to get this balance right, as consumers increasingly calculate and compare the two prices.

    Look for a bigger Sunday strategy down the road, as well. The Morning News says you get included digital access even if you only get the paper one day a week, if that day is Sunday. That's because Sundays generate more than half the ad revenue for many papers. In this we see a big transition model: Sunday paper reading with old-fashioned lean-back approach to feature sections, puzzles and comics and daily digital access, tablet and online. Look for this model to have legs.

    Why not charge print subscribers a bit extra for digital access? It's too dicey for a paper that's increased prices as rapidly as the Morning News has. Journalism Online (which is not involved in the Dallas plan) is strongly advocating its partners charge something extra to print subscribers -- to establish digital value -- but is facing resistance in many quarters. In Dallas, the game is to throw a lasso around all those print subscribers and call them "members," a high-fallutin' term for subscribers, though connoting more interactivity. What it wants all those paying subscribers to understand is that they are now customers of a big integrated, have-it-your-way regional brand. Overnight, over tonight, it wants to transform as many of  those print subscribers who are online "visitors" and "users" ("The Newsonomics of Overnight Customers") into customers. At a minimum, the Morning News has to keep reinforcing that overall customer relationship so that readers see that paying for digital news is a natural extension of paying for the newspaper, as those customers (rapidly, I believe) replace newspapers with tablets.

    What will happen to the samplers? This could be an Achilles' Heel of the Dallas plan. In restricting access to local, staff-written content, it makes sampling the digital Morning News difficult -- and that may be a a problem in attracting the next generation of younger (non-habituated-to-print) readers. Moroney decided not to give readers their pick (another Journalism Online recommendation) of 15 or 20 articles of their choice, but rather restrict local content access. In a word, for Moroney, it's about value -- reinforcing the value of that local journalism by making it scarce online, and thus worth paying for. This is a contention to be closely watched, as virtuous principle may run up against the real-world inclination to just go away, as non-newspaper readers bump into the wall.

    If the Morning News loses readers, who will gain them? McClatchy's Fort Worth Star-Telegram, the rival daily, could benefit, but the whole Dallas/Fort Worth identity split, much like that in the Twin Cities of Minneapolis and Saint Paul, argues against wholesale reader movement. Texas Tribune has been gaining readers; presumably these are voracious news readers, though, who will still appreciate the thoroughness of the Morning News' report. ABC affiliate WFAA, a long-time sister property, is now part of a separate company, Belo Corp, and it's a strong player in local news, its iPhone app recently reached #10 in popularity in the iTunes news store. In addition,  other local TV stations are upping their game. Then, there's the alternative Dallas Observer and Pegasus News (which Orren built). Don't forget the national locals, everyone from Yahoo to ESPN to the new AOL HuffPo. It's curious to note that KERA, the biggest local public radio station, hasn't yet made the leap into local digital news that its peers in Chicago, Boston, L.A. and Portland, to name a few, have.

    Is the Morning News afraid of losing digital ad revenue? It's a concern. Consider that newspaper sites don't sell all the inventory they have available anyhow. Consider sell-through, the percentage of inventory that a site sells. Most site managers will tell you they struggle to sell 50% of the inventory. The key, going forward, all smart ones will tell you, isn't the percentage of sell-through; it's overall revenue and that is achieved with better targeting, yield optimization and premium packaging -- all works in progress. The dance here keeping enough page views, especially in key content areas, to maintain digital ad sales and revenue growth.

    How will Google treat the Morning News in search results? Pixel-stained wretch Mike Orren pointed out today that, in its paid testing, Morning News content has already lost standing in Google search results. If that holds, then the top of the traffic funnel that Google has long fed will narrow. Maybe, publishers will find away around that narrowing (opening up sampling to a set number of free pages to any content should do that) or maybe they'll find that the loss of page views really doesn't have much impact on their revenue.

    Can the Morning News really make the case that it's got enough journalism mo-jo going to justify digital payment? In four words: Let us hope so. The Morning News still have 330+ people in the newsroom, triple the number of one of its former Top 10 peers, the Mercury News. Moroney and editor Bob Mong have twisted themselves in knots through the recession to try to hold on to the large newsroom. The Morning News was one of the few papers to add back a few slots and some newshole in 2010. Of course, Dallas readers don't know that they've got it a lot better than their urban contemporaries across the country.

    If the test doesn't work in Dallas, gaining less than a percent of unique visitors as paying customers, then it will have a hard time working in any U.S. metro area.

    Okay, one, more. Is this a do-or-die test? No, it only seems that way, given all the tension around newspaper companies' futures. When old Belo Corp split into two into newspaper and TV holdings in 2007, it wisely unburdened the newspaper spin-off, A.H. Belo, of debt. So the Morning News doesn't have debt holders and the gong of restructuring hanging over it. The metered system is by nature a flexible one, and could be tweaked tighter or looser, depending on both payment uptake and impact on ad selling.

    In fact, financially -- in 2011 -- this may have a small-potatoes impact. It's not a 2011 strategy, as much as a 2013-2015 strategy. Listen to Moroney describe it, as he did to me, as a R & D strategy of a sorts, not dissimilar from how Rupert Murdoch is deploying The Daily:

    "We want to understand what content which consumers will pay for and how much they will pay for it on different devices. We will need to be patient and really do a job at audience and usage data analytics. We also have to remember we are dealing with a small number of devices in market when it comes to tablets. It won't be about big numbers this year. It will be about understanding subscriber and non- subscriber behavior/engagement as it relates to consumption of digital content in a paid access environment."

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